Gold Fundamental Forecast – November 24, 2016

Gold futures tumbled on Wednesday after the U.S. Dollar spiked higher on growing expectations of a Federal Reserve rate hike at its monetary policy meeting in December. The main driver of the price action yesterday was a much better than expected U.S. Durable Goods report.

February Comex Gold futures closed at $1190.30, down $23.80 or -1.96%.

Wednesday’s Durable Goods report showed a rebound in October, driven by rising demand for machinery and a range of other equipment, the latest indication of an acceleration in economic growth early in the fourth quarter.

Durable Goods Orders were up a whopping 4.8%. Investors were looking for a read of 1.2%. The last report showed a 0.3% decline. This was the best showing since a similar advance in October 2015. Core Durable Goods Orders were up 1.0%, coming in better than the 0.2% forecast.

Weekly Unemployment Claims came in at 251K versus a 241K estimate. Last week’s number was revised downward to 233K. According to the Labor Department, claims have now been below 300,000 for 90 straight weeks.

According to the minutes from the Fed’s November 1-2 meeting, Federal Reserve policymakers appeared confident that the economy was strengthening enough to warrant interest rate increases soon. This has since been confirmed by Fed Chair Janet Yellen who said last week that a rate hike would be “appropriate.”

Helping to support the U.S. Dollar late in the session were firmer U.S. Treasury yields. The strength of the durable goods report help drive the 10-year Treasury Notes to 2.35 percent. The 30-year Treasury Bond yield closed higher at 3.02 percent. The two-year note yield hit its highest level since April 2010 and was last trading near 1.14 percent.

In other data, the IHS Markit Manufacturing Index for November showed a slight increase to 53.9 from 53.4 in October. A reading above 50 signals expansion within the manufacturing sector. The IHS added, “The headline index was the highest since October 2015, largely reflecting robust output and new business growth during the latest survey period.”

The Home Price Index showed a 0.6% increase versus a 0.5% estimate. New Home Sales came in at 563K, below the 591K and the 574K previous read. This was a 1.9 percent drop. University of Michigan Consumer Sentiment came in at 93.8, above a 91.6 estimate.

Forecast

The U.S. exchanges are closed on Thursday due to the Thanksgiving holiday. Trading will resume on Friday, but volume is expected to remain below average. Gold will be traded on the electronic platform for a limited time on Friday, but don’t expect much movement.