Price of Gold Fundamental Daily Forecast – Rangebound Due to Rising Short-Term, Falling Long-Term Yields
Gold futures rose on Friday as U.S. Treasury yields fell to their lowest level since September 23. Perhaps helping to cap gains was the U.S. Dollar, which held steady against a basket of major currencies throughout the session.
Traders said the price action was likely fueled by position-adjustments in response to a disappointing headline number in the November U.S. Non-Farm Payrolls report, fear of the unknown created by the Omicron coronavirus variant and the shedding of riskier assets.
Despite Friday’s strength, gold still finished lower for the third consecutive week, down 0.4%, as Fed officials struck a hawkish tone on stimulus tapering and interest rates.
NFP Report – Unemployment Rate Indicates Labor Market Tightening
Gold’s price action suggests aggressive speculators bit on the disappointing non-farm payrolls headline number, while ignoring the most important unemployment rate which plunged to a 21-month low.
The headline number may have been enough to fuel short-term bullishness, but the drop in the unemployment rate points toward weaker gold prices over the long-run. In other words, there was nothing in the report to discourage the Fed from increasing the pace of tapering and raising rates sooner-than-previously anticipated.
U.S. employment growth slowed considerably in November amid job losses at retailers and in local government education, but the unemployment rate plunged to 4.2%, suggesting the labor market was rapidly tightening.
The survey of businesses showed nonfarm payrolls increased by 210,000 jobs, the fewest since last December. But the economy created 82,000 more jobs than initially reported in September and October, a sign of strength. That left employment 3.9 million jobs below the peak in February 2020.
Benchmark 10-year Yield Slides Below 1.4% on Safe-Haven Bid
U.S. Treasury yields tumbled on Friday in choppy trading, with the 10-year yield dropping below 1.4% for the first time since September as risk-off sentiment took hold in the markets, sending Wall Street lower and gold prices higher.
The benchmark 10-year yield fell to its lowest level since September 23 at 1.355%. Lower yields reduce the opportunity cost of holding non-interest bearish gold.
US Dollar Capped by Mixed Jobs Report
The U.S. Dollar reversed gains to trade little changed on the day after the release of a weaker-than-expected U.S. jobs report, which still included positive revisions for previous months and solid details about the labor market. The greenback ended the week broadly unchanged on the week despite rallying last week to its highest level since July of last year.
We could be looking at a choppy trade until the Fed’s monetary policy meeting on December 14-15. The rangebound trade will likely be driven by rising short-term yields, which tend to be bearish for gold, and falling long-term yields, which tend to be supportive for gold.
Fed Chair Jerome Powell’s hawkish comments to Congress last Wednesday are encouraging the sellers. Growing concerns about the Omicron variant are attracting the buyers.