Gold prices ended the week up nearly 5% to settle at $1173.19 an ounce, the highest level since October 28. The recent turbulence in global equity markets and lackluster demand for the greenback drove strong gains for gold last week as investors sought safe haven assets. Friday's data from the Commodity Futures Trading Commission (CFTC) showed that speculative traders on the Chicago Mercantile Exchange increased their net-long positions in gold to 72822 contracts, from 59040 a week earlier.
Although the latest batch of soft U.S. data raised concerns about the strength of the economy, Friday's non-farm payrolls report suggests that it is too early to take a March rate hike by the Federal Reserve completely off the table. Figures from the Labor Department showed that the economy added only 151K jobs in January, well below consensus estimates of 189K, but average hourly earnings jumped 0.5% and the unemployment rate fell to 4.9% from 5.0%. Despite the weak headline figure, the increase in wages and decline in the unemployment rate indicate the labor market remains firm.
The XAU/USD pair tested the 1145 level as expected after the 1151 level gave way but found significant amount of support in the vicinity and reversed. Breaking through the 1163/0 resistance attracted more buyers and the market eventually challenged the 1171 level. The market remains bullish while prices are above the daily and 4-hourly Ichimoku clouds. Closing near the top of the candle also suggests that there is still more room to the upside. In other words, there is a possibility that XAU/USD will reach the 1208 - 1193 area -where the long-term bearish trend line, horizontal resistance and top of the weekly cloud cluster- before a meaningful pullback. The initial resistance level now stands at 1179, followed by 1186. The bulls will have to push through the 1186 level so that they can gain enough traction to test the 1193/1 resistance. On the other hand, trading within the boundaries of the Ichimoku cloud on the weekly chart implies that it may not be an easy ride. To the downside, keep an eye on the 1163/0 support. If the market is unable to stay above that, prices may retreat the 1051 - 1149 region. The bears will need to break below 1149 so that they revisit 1145 and 1141.
