Gold Fundamental Forecast – November 10, 2016

Gold prices were all over the charts on Wednesday as investors reacted to both fear and certainty over the outcome of the U.S. presidential election. On the fear side, gold futures rose to their highest level in six weeks to $1338.30 when the election polls started to show that Trump had a chance to win the presidency. On the certainty side, gold plunged about $60.00 after it became clear that Trump would be the next president.

Although there is expected to be some lingering volatility as traders get used to the idea of Trump as the new president and especially if he starts to lay out his reforms plans and ideas for expanding economic growth and prosperity, however, it won’t be long before investors start reacting to the traditional fundamentals that have been influencing gold prices this year.

The next big influence on the direction of gold prices will be the Fed’s interest rate decision on December. Gold received some support on Wednesday as stock markets plunged because the volatility also dragged down U.S. Treasury yields. There was also talk that the Fed may abandon its plan to raise rates due to the excessive stock market volatility.

Once the uncertainty over the election results was lifted and investors began to embrace the reality of a Trump win, stocks settled and began to rise along with Treasury yields. These moves began to drive gold prices back to reality and the market essentially erased all of its earlier gains. For the session, December Comex Gold closed at $1278.20, up $3.70 or +0.29%.

Forecast

Wednesday’s price action in the gold market was mostly driven by emotion. Sure the daily price action was significant, but the market didn’t take out any significant tops on the rally. At times, it seemed like investors were following “the book” and buying gold because paper assets (stocks) were falling.

Some traders were also trading by blindly reading the news media headlines about a Trump win being a Black Swan event or likely to be worse than Brexit. Well I have news for those who compared his win to Brexit, Wednesday’s rally fell $46.10 short of the top made at $1384.40 on July 6 about 12 days after the U.K. voted to leave the European Union.

Based on where gold finished on Wednesday, it looks as if the market will return to normal in terms of volatility fairly quickly. The next move in gold is likely to be related more to the direction of interest rates rather than the election results. Sometimes you have to take it one event at a time with some awareness of the future.

To put it into a time table, we have the OPEC production decision on November 30, the Fed’s interest rate decision on December 14 and Trump’s inauguration in late January.

We could see some spillover volatility on Thursday. It will all depend on whether stocks continue the rally, or profit-takers come in after Wednesday’s sharp decline.

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