Gold Price Fundamental Weekly Forecast – Direction Hinges Upon US Consumer Price Index

Gold futures finished nearly 2% higher last week with all of the gains attributed to Friday’s 3% surge. Following the test of a 31-month low on November 3, the market soared on Friday after data showing an uptick in the U.S. unemployment rate in October raised optimism the Federal Reserve would be less aggressive on rate hikes going forward.

On Friday, December Comex gold futures settled at $1676.60, up $31.80, up $1.90%.

US Labor Market Reports Fuel Two-Side Volatility

Last week it was uncertainty from a number of U.S. labor market reports that drove the volatile price actions- first down then up.  Early in the week, a surprisingly strong jobs openings report (JOLTS) showed enough resiliency to drive yields up and gold prices down.

Later in the week a combination of stable U.S. unemployment claims and a Challenger Job Cuts report sent a mixed message.

This was followed by another mixed report on Friday. The major U.S. Non-Farm Payrolls report revealed robust jobs growth, but a slight rise in the unemployment rate.

By the time the session ended on Friday, traders locked on to the unexpected jump in the jobless rate as a possible sign that could encourage the Fed to slow the pace of future rate cuts beginning in December.

Traders have another non-farm payrolls report in December in which to determine if the unemployment rate is indeed rising, but before that gold investors have to deal with Thursday’s U.S. consumer inflation (CPI) report first.

US Consumer Inflation Report Sets the Tone This Week

The direction of the December Comex gold market this week is widely expected to be determined by the strength or weakness in the October consumer inflation (CPI) report, due to be released on Thursday, at 13:30 GMT.

Economists are once again expecting inflation to come in at extremely high levels on a historical basis.

The consensus CPI report forecast calls for inflation rising 0.7% for October, according to FactSet. The so-called core rate of inflation – which excludes volatile food and energy prices – is expected to rise 0.5%. That would follow a 0.4% overall CPI reading in September and a 0.6% rise in core CPI.

Factset also said, on an annualized basis, the consensus CPI forecast is for an 8.0% year-over-year increase, and for core inflation to rise at a 6.5% rate. That would represent only a modest set of improvements from the September report, where the annual inflation rate was 8.2% overall and 6.6% for core.

Weekly Outlook

If the CPI data comes in higher than the estimate then look for traders to price in another 75-basis point rate hike in the Federal Funds rate for December’s Fed meeting. This would be bearish for gold prices.

A lower-than-expected CPI reading would be no guarantee the Fed would come out with a 50-basis point rate hike next month. It would want to see another one since the Fed is all about stability. Gold short sellers could cover aggressively on this news.

As of Friday’s close, the markets’ expectations are split between a 0.50-percentage point and 0.75-percentage-point rate hike in December, according to the CME FedWatch Tool.