Gold Holds 200-Day EMA, Futures and Options Hint at ‘Dip-Buying Mentality’

Gold has found support around its 200-day EMA as futures positioning strengthens and options traders retain a relatively bullish skew. With NFP approaching, the setup keeps the prospect of another push towards 5,000 alive.

 

View related analysis:

• USD/JPY Volatility Jumps as BOJ Hike Risk Returns
• Gold Pullback Risk Builds as AUD/USD and USD/CAD Set Up
• Gold Falters at Resistance, Grappling With PCE, Month-End Flows and Jackson Hole
• US Dollar Outlook: DXY Seasonality Meets NFP Volatility

 

 

Gold Support Holds as Positioning Backs the Dip-Buying Case

Gold Price Analysis: Futures (GC)

We saw the pullback on gold in line with my bias last week. It seemed like a reasonable assumption, given we’d already seen a decent move into resistance and were heading into inflation data and a likely hawkish Jackson Hole speech. Yet support has since been found around its 200-day EMA and historical weekly VPOC (volume point of control).

A small bullish candle shows that bears lost steam around that support level, while the above-average volume relative to the small-range day suggests a ‘change of hands’ from bears to bulls. Given the US dollar rally has also formed a doji around its 50-day EMA to hint at resistance holding over the near term, I am on guard for at least a cheeky bounce towards 4600, near its weekly pivot point.

 

Gold Bulls Eye 5,000 While 4,300 Support Holds

Whether gold can simply rally from here and break above 4800 sits in the hands of US economic data, Fed expectations and the US dollar. But the higher timeframes continue to suggest gold could eventually break above 5,000.

If momentum peters out and turns south, a break below 4300 brings the 4076 VPOC into focus. For now, this seems like an outside chance, and I continue to suspect dip buyers are keen to snap up gold bars at a discount with another crack at 5,000 in mind.

Source: ICE, TradingView

 

 

Gold Futures Positioning Supports the 5,000 Case

A quick reminder as to why I still think a rally to 5,000 is on the cards. Net-long exposure to gold futures has continued to trend higher, with rising longs and diminishing shorts. A similar pattern can be seen among asset managers, though this is not visible on the left chart for the sake of simplicity.

Note the two-bar bearish reversal on the gold futures chart – a dark cloud cover. Yet already the gold pullback is losing steam. My bias has been to seek dips within the three-week rally, which showed strong bullish range expansion following compression around 4,000 support.

 

 

 

Options Traders Keep the Dip-Buying Bias Alive

Moreover, options traders have significantly reduced their bias towards puts (downside protection), with risk reversals temporarily flipping back in favour of calls. While they have dipped back below zero to show a bias towards puts in aggregate, risk reversals remain elevated despite the pullback in gold prices.

Therefore, I continue to favour the ‘dip-buying mentality’ of gold traders over the coming weeks or months unless the US dollar can truly rally. But even then, my bias for now is that the US dollar has topped for the year.

Source: COMEX, CME, CFTC (COT), LSEG

 

 

Gold Volatility Peaks Ahead of NFP, Then Fades

I have been releasing forward returns charts this week to show how some markets have historically performed over the three days either side of NFP. The general pattern has been that volatility peaks notably on NFP day, yet average and median returns have been too close to +/- 0.1% to assume any directional bias beyond the probability of a coin flip.

Gold shows a similar pattern, with minimal returns around zero, yet its daily high-to-low volatility actually declines throughout the forward return window. Specifically, the average daily range peaks at 2.1% on the Tuesday prior to NFP (T-3), halves on T-2 before another peak of 1.85% on NFP day, then continues to trend lower into the following week.

Median ranges – which provide a better representation of a typical NFP period – also peak at T-3, but at the lower level of 1.6%, before reaching 1.3% on both NFP day and T+1.

That said, the directional bias on NFP day for gold is slightly bullish, with a win rate of 53.8%. Also note that gold has closed higher on six of the past eight NFP days. For us to expect gold to trade higher on Friday likely requires a softer NFP print, and recent US data suggests that remains plausible.

Source: COMEX, LSEG

 

Gold vs NFP: Trader Takeaways

• Gold volatility has historically peaked before NFP, with average ranges reaching 2.1% at T-3.
• NFP-day volatility remains elevated, but average returns show little reliable directional bias.
• Gold has a slight historical bullish skew on NFP day, with a 53.8% win rate.
• Gold has closed higher on six of the past eight NFP days, although Friday's direction will likely hinge on the payrolls surprise.