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Gold Fundamental Forecast – December 2, 2016

By:
James Hyerczyk
Published: Dec 2, 2016, 07:10 UTC

February Comex Gold futures are recovering slightly on Friday after plunging to their lowest level since February in the previous session.

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February Comex Gold futures are recovering slightly on Friday after plunging to their lowest level since February in the previous session. Position-squaring ahead of Friday’s U.S. Non-Farm Payrolls report may be responsible for the selling pressure.

The U.S. Dollar is also trading weaker, helping to underpin the dollar-denominated gold contract.

In economic news on Thursday, the ISM Manufacturing PMI report showed that U.S. factory activity accelerated to a five-month high in November amid a pickup in new orders and production, suggesting that the manufacturing sector was stabilizing after a prolonged slump.

Additionally, Dallas Federal Reserve Bank President Robert Kaplan on Thursday said he is keeping his forecast for 2-percent U.S. GDP growth next year intact despite the possibility of new economic policies from the Trump administration.

In other news, The Perth Mint said that its sales of gold and silver products fell in November.

According to Reuters, India’s overseas purchases of gold could halve this month after jumping to the highest level in 11 months in November because retail demand has faltered due to the government’s move to scrap high-value currency notes.

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Daily February Comex Gold

Forecast

Gold prices will continue to be largely influenced by the direction of U.S. Treasury yields. The current chart pattern suggests the nearest support for gold is about $100 lowers if current support levels fail. A spike to the upside in Treasury yields is likely to trigger the start of this move.

Over the short-run, gold may find support if stocks continue to weaken. Any rally is initially going to be supported by short-covering. It’s going to take a shift in investor sentiment to bring in actual buyers.

The key report today that should drive Treasury yields is the U.S. Non-Farm Payrolls report. The headline number is expected to show the economy added 177K jobs in November. This will be up from the previous 161K. However, because of the strong ADP private sectors jobs data on Wednesday, I wouldn’t be surprised if the number comes in above 200K.

Average Hourly Earnings are expected to come in at 0.2%, down from 0.4%. The Unemployment Rate should stay the same at 4.9%.

Also on tap are two Fed speakers, FOMC Members Lael Brainard and Daniel Tarullo. Both may talk about the jobs report and the outlook for inflation and their impact on the Fed’s December rate hike decision.

Since a December rate hike has been fully priced into the gold market in my opinion, I think investors will start focusing on future rate hikes. If the jobs number is well-above expectations and the outlook for inflation continues to improve because of higher crude oil prices then I think the Fed will be more aggressive with rate hikes in 2017.

The Treasury market will reflect this better. If rates start to accelerate to the upside then this will likely be the catalyst for a steep drop in gold prices. At this time, oversold conditions seem to be propping up gold so a short-covering rally would not be a surprise. However, the long-term outlook remains bearish.

 

 

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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