Why gold bears are watching US payrolls

Gold's slide is set to deepen this week to below $1,270 an ounce if Friday's closely watched U.S. jobs report signals improving labor market growth, CNBC's latest survey of traders and strategists has found.

"The biggest economy of the world is on a continuous path of recovery and this is a bearish signal for gold," said Naeem Aslam, chief market analyst at Ava Trade. "We have consistently said that we need to break above the $1,400 mark for any serious bull speculation to develop."

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Almost two-thirds of respondents in a CNBC survey (65 percent or 15 out of 23) said the price of gold will decline this week. About 22 percent said prices will be unchanged while just three respondents, or 13 percent, forecast gains.

If this week's U.S. key economic numbers for March are positive, they could fuel a dollar rally and boost stocks but undermine gold's safe-haven appeal.

Importantly, the March figures should be largely free of the distortions caused by recent extreme winter weather, and will likely show resilience in the broader economy.

Upbeat data may encourage the Federal Reserve to exit its bond-buying program and raise interest rates sooner than expected.

What's wrong with the gold trade?

"We believe these reports will support the relatively hawkish Fed," said UBS commodity strategists Dominic Schniderand Giovanni Staunovo. "U.S. monetary policy normalization will be a constant drag on the yellow metal in the coming quarters."

Technical Position

UBS' message for investors remains unchanged: "We advise them to reduce excessive long positions or sell the price upside for premiums."

On average, economists believe around 200,000 more Americans joined the workforce in March, according to Reuters estimates. Meanwhile, the ISM manufacturing index is forecast at 54.0, up slightly from the February level of 53.2.

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Gold was languishing near a seven-week low on Tuesday, after posting its first monthly drop of the year, as investors pulled money out of bullion-backed exchange-traded funds in favor of riskier assets, Reuters reported.

The metal dropped nearly 1 percent on Monday and hit a low of $1,282.04 in the previous session -- the lowest since Feb. 11.

Should U.S. data beat expectations and create a pro-risk environment, gold may continue its descent towards $1,270 or even lower before attracting buyers.

Why the top could be in for gold

"Gold's technical position is now negative," said Mark O'Byrne, Founder and Executive Director of Dublin-based bullion dealer Gold Core. Last week's close below $1,300 opens up the possibility of further falls to $1,270 and $1,200, O'Byrne added, although recent sharp drops and the prospect of further selling "should bring physical buyers back into the market and support gold."

Dhiren Sarin, Chief Technical Strategist, Asia-Pacific at Barclays said "more downside is in store" for gold and said prices need to test levels between $1,275 and $1,265 "before we can get bullish again." Hans Goetti, Head of Investment, Asia at BIL, added that gold should find support at $1,270.


Despite the strongly bearish tilt of CNBC's latest survey, latest data from IG Markets shows 78 percent of their more than 501 clients with open positions expect gold prices to rise.

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The wildcard - and potentially bullish fodder for gold prices - remains an escalation of the crisis in Ukraine and the threat of further western sanctions leveled against Moscow, said Edmund Moy, chief strategist at gold-backed IRA provider Morgan Gold.

"Globally, the unpredictable Russian sanctions situation could pop next week, which would be a key risk event," Moy said - although he on balance holds a bearish view on gold this week and expects March jobs report to show modest improvement in the labor market. "I would assume a continuation of recent employment trends where it is mixed but leaning slightly more positive over time."

Gold prices face a "difficult near-term problem" to break above $1,300, said David Lennox, resources analyst at equity research firm Fat Prophets in Sydney. But "a good dose of Russian geopolitical risk beyond what we have now could deliver some upside if there is an escalation in events."