Price of Gold Fundamental Daily Forecast – May Need Weak Labor Data to Extend Rally

Gold prices hit a one-week high on Thursday in reaction to the weaker U.S. Dollar and increased demand from Chinese retail investors. The precious metal also picked up strength following the nomination of Fed Governor Jerome Powell, a noted Federal Open Market Committee dove. Prices fell into the close after demand for higher-risk assets increased and as investors squared positions ahead of the U.S. Non-Farm Payrolls report on Friday.

Late in the day, President Trump nominated Fed Governor Jerome Powell to become the central bank’s next chair. Powell’s nomination was widely expected by experts and most investors. He is dovish like current Chair Janet Yellen so investors expect to see the gradual raising of interest rates into the future.

The U.S. House of Representatives released proposals to overhaul the tax code.

A summary of the document revealed that the plan calls for slashing the corporate tax to 20 percent from 35 percent and reducing the number of tax brackets for individuals.

The initial proposal is not likely to pass into law quickly and investors believe that it’s not enough to be meaningful. Some are doubtful that it’ll have any significant impact on the overall GDP of the country.

Over the long-run, cutting taxes would increase spending, drive inflation and U.S. interest rates higher. However, since the process to become law may be lengthy, the proposal is having no bullish impact on the dollar at this time.

In other news, the Challenger Job Cuts report came in at -3.0%. This report represents the change in the number of job cuts announced by employers. ‘Actual’ less than ‘Forecast’ is good for the U.S. Dollar. Last month, the report came in at -27%.

Weekly Unemployment Claims were 229K, better than the 235K estimate and 234K previous reading.

Preliminary Nonfarm Productivity was 3.0%. This was slightly worse than the 2.5% forecast. The previous number was raised to 1.5%. Preliminary Unit Labor Costs were 0.5%, matching the forecast. The previous report was revised downward to 0.2%.

Forecast

On Friday, the U.S. will release its latest labor market data. The Non-Farm Employment Change is expected to show the economy added 312K jobs in October. The Unemployment Rate is expected to remain unchanged at 4.2 percent and Average Hourly Earnings are expected to rise 0.2%, lower than the previous 0.5% increase.

The U.S. Trade Balance is expected to deepen slightly, coming in at -43.3 billion versus the previous -42.4 billion.

The ISM Non-Manufacturing PMI is expected to dip from 59.8 to 58.5. Factory Orders are expected to increase slightly by 1.3%.

A bullish report should drive the U.S. Dollar higher which would put pressure on gold prices. Strong demand for risky assets should also weigh on gold prices. Weak employment numbers won’t derail the Fed’s plans to raise rates in December, but it could alter its plans for further hikes in 2018. This could pressure the dollar while leading to increasing support for gold.

Technically, December Comex Gold futures face a significant hurdle at $1286.10 to $1286.80. This is not only resistance but also the trigger point for an acceleration to the upside.