Gold Fundamental Forecast – December 9, 2016

Gold futures weakened on Thursday, pressured by a stronger U.S. Dollar and expectations the U.S. Federal Reserve will hike rates next week. A weaker Yen and Euro helped boost the dollar. They were pressured by greater demand for risky assets.

February Comex Gold futures closed at $1172.40, down $5.10 or -0.43%.

Traders are bracing for next week’s Fed interest rate announcement and monetary policy statement. The central bank is widely expected to raise its benchmark rate 25 basis points. This move should be seen as a negative for gold, but no one is sure how much of the report has been priced into the market.

In economic news on Thursday, the number of Americans filing for unemployment benefits fell from a five-month high last week. This indicated strength in the labor market that is necessary to sustain the pace of the current economic recovery.

U.S. Treasury yields rose on Thursday, helping to make the U.S. Dollar a more attractive investment. The European Central Bank prolonged its bond purchase program, as expected, but stunned traders by scaling back on the amount of bonds it will buy each month.

The ECB cut back on its asset buys in a move that surprised traders, but promised protracted stimulus to aid a still fragile recovery, and dismissed any talk of tapering the program away.

In other news, South Africa’s mining output fell 2.9 percent year-on-year in October, according to the Statistics South Africa’s monthly mining production data released on Thursday.

New data also showed investors were still liquidating their investments. Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, dropped 0.34 percent to 860.71 tonnes on Thursday.

 

Forecast

Gold is trying to consolidate inside this week’s range of $1158.60 to $1190.20. The price controlling the direction of the February contract is $1174.40.

If traders decide to react to the traditional fundamentals then a stronger U.S. Dollar and higher stock prices should limit gains and likely pressure gold prices over the near-term.

Conversely, a weaker dollar led by a drop in U.S. Treasury yields or a sell-off in the stock market should be supportive for gold.

Look for an upside bias on a sustained move over $1174.40 and a downside bias on a sustained move under this pivot price.