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Gold Fundamental Analysis – Forecast for the Week of December 5, 2016

By:
James Hyerczyk
Updated: Dec 4, 2016, 06:59 UTC

Gold futures closed lower last week primarily in reaction to rising U.S. Treasury yields. A decline in the U.S. Dollar and generally weaker U.S. equity

gold-weekly

Gold futures closed lower last week primarily in reaction to rising U.S. Treasury yields. A decline in the U.S. Dollar and generally weaker U.S. equity markets may have helped underpin the market at times, preventing a complete breakdown in prices.

February Comex Gold futures closed at $1177.80, down $3.20 or 0.27%.

Strong U.S. economic data set a negative tone for gold week. The first report was 3rd Quarter GDP, it showed the economy grew by 3.2%, up from 2.9%. It was also better than the estimate.

Other major reports included the Conference Board’s Consumer Confidence, which came in at 107.1, up substantially from 100.8. This report was important because the survey took place after the election of President-elect Donald Trump. This may be an indication that consumers have confidence in Trump’s economic plans.

The ISM Manufacturing PMI report came in at 53.2, up from 51.9 and better than the 52.1 estimate. The numbers support an improving economy.

The week-ended with a mixed U.S. Non-Farm Payrolls report. The headline number was in line with expectations. It showed the economy added 178,000 jobs in November. Average Hourly Earnings were a disappointing -0.1%. This was below the previous 0.4% and the 0.2% estimate. The unemployment rate was 4.6%, well-below the 4.9% forecast and previous reading.

Gold prices also spiked lower last Wednesday after OPEC announced its plan to curb production. Sharply higher oil prices drove up Treasury yields, pressuring gold to its lowest level since February.

weekly-february-comex-gold
Weekly February Comex Gold

Forecast

Gold is in a tough spot both technically and fundamentally. Technically, it is trading below the mid-point of the year at $1221.20, which puts it in a bearish positions. The market is also in a position to finish the year in a downtrend after spending the earlier half of the year in an uptrend. The charts also indicate there isn’t much support until $1055.20.

If there is a rally then it will likely be triggered by short-covering. As long as the Fed is raising rates and Trump’s plans are supporting higher Treasury yields, gold is likely to see limited upside action.

Fundamentally, Friday’s jobs report was strong enough to support a December rate hike, but not enough to support multiple rate hikes in 2017. Since the December rate hike is likely priced in, we could see some profit-taking in gold, or a least as slightly sideways-to-higher move.

Like I said, there isn’t much support until $1055.20, however, I don’t think there is an urgency at this time to drive the market into this price with one big move.

Economic data is light this week. The two major reports are the ISM Non-Manufacturing PMI report on Monday and the Preliminary University of Michigan Consumer Sentiment report on Friday.

The Fed’s interest rate decision is on December 14. Don’t be surprised by a sideways trade into this announcement.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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