Gold Fundamental Forecast – November 8, 2016

Gold prices fell sharply at the start of the week in reaction to a strong recovery by the U.S. Dollar and global equity markets. The catalyst behind the increased demand for higher-yielding assets and the drop in demand for less-risky assets was the news that the FBI had cleared Democratic presidential candidate Hillary Clinton of criminal charges related to her use of a private email server.

The way the markets reacted on Monday strongly suggests that the news just paved the way for a victory by Clinton.

This time last week, uncertainty over the election overwhelmed investors enough to boost demand for the safe-haven appeal of gold. Prices rose more than 2 percent higher last week.

On Monday, December Comex Gold closed at $1279.40, down $25.10 or -1.92%, essentially erasing all of last week’s gains in one day.

Forecast

Now that gold prices are back to where they were prior to the news of the latest FBI investigation, the market is likely to resume its previous downtrend. If Clinton wins, gold is likely to correct further. This is because she represents the “status quo” which means it will be business as usual. This includes a rate hike by the Fed in December which should exert pressure on gold prices.

December Comex Gold prices may hover for a couple of days on both sides of a key technical area at $1278.90 to $1276.30, however, once the support at $1276.30 is taken out with conviction, prices may continue to break further into $1268.50, $1260.10 then eventually back to $1243.20.

We know that the Fed rate hike will be bearish for gold prices. How bearish will be determined by the direction and level of U.S. Treasury yields. We are going to assume that gold traders fully-priced in the Fed rate hike when the market traded down to $1243.20.

We now have to figure out, how much of an influence the protection taken by investors ahead of the election added to gold prices. My assumption is that the entire rally from $1243.20 to $1309.30 was related to hedge protection ahead of the election. So if Clinton is elected, we could see the entire $66.00 premium wiped out over the next week or so.

Because of Brexit, we have to add that if for some reason the polls are wrong and Trump wins, gold could rally as much as $100.00 because this news will shock the financial markets.

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