After a turbulent week for gold and US equities, markets were hit by a mixed employment report starting in November. Despite the big lack in the headline issue, the details were pretty optimistic. The latest data showed that the US economy created only 210,000 jobs last month against 535,000 expected.
“The algorithms first saw the headline go missing and the gold exploded. But as analysts read the report, it was pretty positive. Minority employment has increased and the participation rate has increased. This showed that the recovery of the labor market is going in the right direction. Overall, the report was still in line with the Fed’s goal of accelerating the stall, ”Edward Moya, senior market analyst at OANDA, told Kitco News.
Next week’s inflation report will be the critical data point determining how aggressive the Fed could get.
Fed Chairman Jerome Powell told Congress this week that the central bank would consider completing its cut a few months earlier, citing more problematic inflation. Powell also withdrew his phrase “inflation is transient,” noting that the threat of ever higher inflation has increased.
“The inflation count next week could see the Fed increase the pace by $ 5 billion to $ 10 billion. This is why many traders expect the strength of the dollar to last a little longer, and this is why gold is stuck below $ 1,800 an ounce, ”Moya said. .
Also, the Fed’s Dec. 15 meeting is important, especially since the US central bank could make a policy error, said Everett Millman, precious metals expert at Gainesville Coins.
“Gold has seen its ups and downs due to the uncertainty the Fed introduced with a more aggressive stance on cuts. The markets are not sure this is the right expectation. Everything seems to come back to the Fed. There is widespread volatility in the markets, ”Millman told Kitco News. “I have talked a lot about the fact that the Fed could make a policy error. And Powell commenting on tapering acceleration might already be that mistake. Gold is on the back trying to react. “
It’s important to keep in mind that the last month of the year is a tough one for trading, Moya noted, warning of thin trading and unexpected catalysts.
“We are coming to the end of the year and we could see a major repositioning in terms of profit taking and thin conditions. You might see investors really locking in some of their profitable trades. There is concern that when you are past peak monetary and budget support, you will see a pullback. This could lead to a massive sell-off in the stock market, ”Moya said.
Millman also reminded investors that the expiration of the December gold futures contract is approaching, saying that “every time we get closer to it we can expect more volatility.”
Moya and Millman both predict gold will be able to support a more convincing rally early next year as the Fed situation clears up.
“Over the longer term, you don’t really see real returns improving. The gold market is going to see a major move once there is a strong consensus on when this first rate hike will take place and whether it will be two or three in the first year. Once the price is built in, that’s when you’ll see gold attracting flows, ”Moya explained.
Levels to watch
Gold ends the week relatively flat, with February Comex gold futures trading last at $ 1,783.90, up 1.20% on the day.
Looking at the technical picture, support is at $ 1,770 and then $ 1,750 per ounce. And resistance remains at the $ 1,800 per ounce level.
“If the price of gold falls below $ 1,750, we could see further losses. The $ 1,680 could come in. That’s the lowest for this year, ”said Millman. “The key is to see whether or not gold can continue to hit those higher lows. This is one thing that encourages me – the gradual building of positive momentum. “
For now, the market is in a wait-and-see mode in terms of inflation and the omicron variant, Moya noted.
“It’s going to be a hectic time. There is still a lot of optimism that we won’t have the same number of lockdowns we did at the start of the pandemic, but some states will struggle. Gold could consolidate between $ 1,750 and $ 1,800 in the lead until the inflation report and the Fed meeting, ”he added.
Data for next week
On the radar next week, the US jobless claims on Thursday and the inflation report on Friday.
“The most important data point will be consumer price inflation in November. Rising prices for gasoline, housing and used cars will be the main driver, but growing evidence of increased corporate pricing power should also be evident, ”the economist said. international head of ING. James Knightley. “This should leave annual rates close to 7% for headline inflation with the potential for core inflation above 5%. “
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