Gold Fundamental Forecast – December 1, 2016

February Comex Gold futures plunged to their lowest level since February on Wednesday after the U.S. Dollar strengthened following the release of strong U.S. economic data.

Gold prices fell sharply against the dollar as oil prices surged after OPEC agreed to output cuts, raising inflation expectations and U.S. Treasury yields.

The dollar was also supported by stronger than expected U.S. economic data. According to ADP, private employers increased hiring in November. The report showed that employers added 216K jobs in November versus a 161K estimate.

Gold was further pressured by a strong Personal Spending report which showed an increase of 0.3%. Personal Income also posted a strong 0.6% gain. The Chicago PMI report blew away estimates with a 57.6 figure.

Dallas Fed Bank President Robert Kaplan suggested that with the economy making good progress toward full employment and inflation heading toward the Fed’s 2-percent goal, it is time for an interest rate increase.

Investors are also responding to the real threat of higher interest rates by liquidating their gold holdings. The SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.13 percent to 883.86 tonnes on Wednesday from 885.04 tonnes on Tuesday.

Forecast

Gold is in a position, according to the charts, to go into a freefall. All it is going to take is another surge in the U.S. Dollar to a new multi-year high. This will only occur if U.S. Treasury yields spike higher in response to this week’s economic news. The main report remains Friday’s U.S. Non-Farm Payrolls. The stronger-than-expected ADP number suggests the NFP report could blow away the current estimates. Gold could plunge if the jobs data trounces the estimates.

On Thursday, investors will get the opportunity to react to several reports. The major reports are Weekly Unemployment Claims and ISM Manufacturing PMI. Unemployment claims are expected to come in at 252K. The ISM report is expected to show an increase to 52.1, up from 51.9.

Minor reports include Challenger Job Cuts, Final Manufacturing PMI, Construction Spending and ISM Manufacturing Prices.

Don’t be surprised if there is consolidation today ahead of Friday’s major U.S. jobs report.