Gold Fundamental Forecast – December 5, 2016

Gold futures firmed on Friday after the release of the U.S. Non-Farm Payrolls report. The mixed report was not well-received by Treasury traders, suggesting that perhaps the Fed may have a limited number of rate hikes in 2017.

In the report, the headline number came in as expected at 178K. Average hourly earnings, however, missed the estimate at -0.1%. This dismal showing suggests that many of the jobs being added are low-wage, low-skill positions.

The unemployment rate dropped to 4.6% from 4.9%, which may not actually be good because the participation rate fell slightly to 62.7 percent.

Despite the mixed labor news, the Fed is still on track to raise rates in December. The price action suggests that gold prices have fully priced in this rate hike. It also suggests that traders may be looking ahead to future rate hikes in 2017.

Although speculators believe that Trump’s economic proposals will be inflationary and likely lead to multiple Fed rate hikes, the jobs data suggests otherwise. Therefore, we could see a boost in gold prices today if investors decide to make position adjustments to reflect this change in investor sentiment.

February Comex Gold futures closed on Friday at $1177.80, up $8.40 or +0.72%.

Forecast

On Monday, gold traders are likely to react to any news regarding the Italian referendum. The latest news is that Italian Prime Minister Matteo Renzi is losing so this will likely lead to his resignation.

Gold could catch a bid because of safe-haven buying tied to the destabilization of the country’s brittle banking system. However, an extended rally could get a little complicated.

If Renzi is forced to resign, then the Euro could tumble. If the Euro tumbles then the U.S. Dollar is likely to rise. This may prevent gold from rallying too far above recent highs. The direction of gold prices today will be determined by whether investors seek shelter in the U.S. Dollar, U.S. Treasurys or in gold itself. We may even see flight-to-safety buying in all three so-called safe haven assets. We’ll probably know more about how investors feel once the European markets open.

Gold is in a critical position on the charts. The 52-week range for the February futures contract is $1055.20 to $1387.10. Its 50% level is $1221.20. Its 62.0% level is $1182.00. These are two key levels that even fundamental traders watch. Currently, the market is trading on the weak side of both levels with no major support until $1055.20. However, overtaking this levels will breathe a little life into the market.