Gold Fundamental Analysis – Forecast for the Week of November 28, 2016

Gold futures plunged to their lowest level since early February and closed down for a third consecutive week as investors continued to liquidate positions ahead of the widely expected rate hike by the Fed in December.

February Comex Gold futures finished the week at $1181.00, down $30.60 or -2.53%. Entering the last week of the month, the market is down about seven percent, putting it in a position to post its largest monthly loss since June 2013.

The main catalysts behind the current weakness are the Fed rate hike in December and the sharp rise in U.S. Treasury yields since Trump won the election on November 8. Higher interests rates make the U.S. Dollar a more attractive investment.

Rising equity markets are also pressuring gold prices. Gold doesn’t pay interest or a dividend so investors are pouring money into assets that do like stocks. Gold is likely to continue to feel downside pressure as long as stocks continue to rise.

A series of key U.S. economic events last week also helped weigh on gold prices. The major news was the jump in U.S. Durable Goods Orders. Its report showed a whopping 4.8% gain versus a 1.2% estimate. Weekly Unemployment Claims came in higher than expected, but the previous week, it had hit a 43-week low. Its downtrend remains consistent with a tightening jobs market, however. Consumer Sentiment was also stronger-than-expected, suggesting consumers viewed Trump’s election as positive for their personal finances and the country’s economic growth.

The Fed meeting minutes indicated that policymakers believe the economy was strengthening enough to warrant a rate hike before the end of the year.

Forecast

Gold is going to continue to react to the direction of the U.S. Dollar and U.S. equity markets. If both continue to rally then look for gold to continue to weakening. Oversold technical factors could come into play, but only if overbought technical indicators pressure the dollar and stocks.

The key reports that could influence the direction of U.S. interest rates, the dollar and gold prices include U.S. Preliminary GDP on Tuesday. The ADP Non-Farm Employment Change on Wednesday. The ISM Manufacturing PMI on Thursday and the U.S. Non-Farm Payrolls report on Friday.

Traders should also prepare for volatility triggered by the OPEC production decision on Wednesday, November 30.