Gold Fundamental Forecast – November 21, 2016

Gold spiked through the May 31 bottom at $1207.00 on Friday, dropping the market to its lowest level since February. There was a technical bounce at $1201.30 and the market was able to regain the previous main bottom, but December Comex Gold still finished lower at $1208.70, down $8.20 or -0.67%.

The catalyst behind the weakness was follow-through selling attributed to bearish comments from Fed Chair Janet Yellen on Thursday. She told a Congressional Sub-committee that a December rate hike was appropriate.

There were no major economic reports on Friday, but several Fed speakers were on tap with Kansas City Fed President Esther George contributing to gold’s weakness by saying the central bank should increase rates “sooner rather than later.”

“My view is that monetary policy should avoid deliberately stoking the risks that come with overheating the U.S. economy and instead, slowing raise the federal funds rate to promote maximum employment commensurate with the economy’s long-run potential to increase production,” George said.

Rising U.S. Treasury yields also sent the U.S. Dollar to its highest level against a basket of currencies since early 2003. This hurt foreign demand for dollar-denominated gold. U.S. 10-Year Treasury Note yields closed last week at 2.337%, the highest level seen since November 9, 2015.

Forecast

With no major economic data scheduled for release on Monday, it’s likely that the strength and direction in U.S. Treasury yields with continue to dictate direction in the U.S. Dollar Index. This in turn will drive gold prices.

We could build a case for the price action on Friday signaling the start of a short-covering rally in gold since its looks as if a December Fed rate hike has been fully-priced into the market.

Monday begins a holiday-shortened week in the U.S. Thursday is the official bank holiday, but volume and volatility are expected to be below average all-week. This is traditionally one of the slowest weeks of the year.

We could see the start of a short-covering rally on Monday that could extend all week if the major banks and hedge funds decide to start tapering trading activity after the opening.