Gold shorts covered on Friday morning. That led gold to press new swing highs to $1,487.20, which is our major resistance level.
After the European Central Bank lowered rates, many traders questioned how much of this was already priced into a euro that is currently about 5 cents from highs, and could not break 1.30 euros against the dollar upon the announcement. This hold has allowed commodities priced in dollars to rally back from a midweek sell-off. This has pushed gold higher, helping it to find a solid base at our $1,458 support over the last 24 hours, and to test the top side of our expected trading range ($1437.5 to $1487.5).
Now that we see nonfarm payroll data beat expectations,with 165,000 jobs added in April, gold will be even less attractive, as equities become the main focus for fund managers and institutions. However, we find the revisions from last month to be the major story Friday, as the March payrolls were revised from 88,000 to 138,000. This is a green light for equities, and gold's luster will continue to diminish.
Gold has consolidated in a range that we have defined to be between $1,437.50 and $1,487.50, and now we are trading $20 to $30 from the session's highs, as gold has proven to be just that: a range trade. A close below $1,437.50 will be very bearish, and will cause those who chased a run higher, as well as value investors, to once again hit the sidelines. This will likely cause a consolidation closer to the psychologically important $1,400 level at $1,402 to $1,404.20. The next line in the sand though will be $1,383.90. If that goes, then $1,320 and below will likely be in the cards.
On the other hand, if gold can consolidate above $1,466 on Friday, then major resistance will still be the $1,474 to $1,478.20 levels, and a close above there will negate the downside action.