Gold within striking distance of five-year low at 1180 after NFP

By now, you’ve no doubt heard about today’s essentially perfect Non-Farm Payrolls number and the resulting surge it’s caused in the dollar. This report, and its resulting implications for Federal Reserve monetary policy will be dissected six ways to Sunday over the next couple weeks, but one of the most pressing developments is the resulting weakness in gold prices.

Gold is set to close lower for its eighth consecutive day, with the yellow metal trading nearly 80 points from the levels seen just two weeks ago. The commodity has sliced through all of the possible near-term support levels along the way, including previous bullish trend line support and the key psychological level at 1100. Now, gold is within striking distance of its nearly six-year low around 1080, leaving traders wondering, “Will we ever see a bottom?”

Based on the secondary indicators, a case can be made for at least a short-term bounce in the coming week. While the MACD is predictably trending lower below both its signal line and the “0” level, showing strongly bearish momentum, the RSI indicator has finally reached oversold territory (below 30). The last time the RSI indicator was this low, gold formed a medium-term bottom just below the 1100 level and rallied for the next three months. Bulls will be hoping that history repeats itself next week.

Of course, the previous support level at 1080 could definitely still give way, especially if we see some hawkish rhetoric from Federal Reserve officials and strong US data (read: Friday’s retail sales report). In that case, there would be little in the way of support until we reach the psychologically-significant 1000 level. As of writing, we feel a bounce is more likely than not, but if the floor at 1080 gives way, look out below!