Gold Prices Set For Correction

Gold is trading at 1084.30 on Monday morning, with little activity in the Asian session. Gold soared almost $25 on Friday after the release of a better than expected NFP report in the US. Not only did the economy create 211k jobs much higher than the forecast of 195k but there were sizable upward revisions to the previous two months. The US dollar gained steadily after the release and continued in the green this morning trading at 98.45 well below the 100.50 level seen last week before the ECB disappointment. What exactly sparked the gold rally is up for discussion. There were no major geopolitical shifts and inflation remains low so why the increase in the non-interest bearing asset.  Silver also added as well as platinum.  Silver is well into the $14 price level moving above 14.50 while platinum moved to 884.50.

Gold was trading near a three-week high on Monday, boosted by a short-covering rally after a strong U.S. nonfarm payrolls report cemented the case for a Federal Reserve rate hike next week. Gold added 2.3 percent on Friday after slumping to a near-six-year low earlier in the week.

Data on Friday showed U.S. nonfarm payrolls rose 211,000 last month, and the unemployment rate held at a 7-1/2-year low of 5.0 percent. September and October data was revised to show 35,000 more jobs than previously reported. The robust data removed any doubts about a possible rate hike at the Fed’s next policy meeting on Dec. 15-16.

Gold fell to multi-year lows last week on expectations of a rate hike as higher rates tend to weigh on non-interest-paying gold by increasing the opportunity cost of holding it. But the jobs data triggered a short-covering rally. Speculators’ short positions in gold are at a record high, according to latest U.S. government data on Friday. Wall Street’s top banks expect the Fed to maintain a slow pace of interest-rate increases in 2016 after it first hikes rates later this month, according to a Reuter’s poll conducted on Friday.

Usually better than expected data would have sent gold lower as it would support a rate hike, but investors on Friday chose to cover their shorts. Higher rates tend to weigh on non-interest-paying gold by increasing the opportunity cost of holding it.

“If the dollar is unable to rally, we may see further short squeezes towards $1,095-$1,100 in the short term leading into next week’s FOMC meeting,’’ said MKS Group trader Sam Laughlin, adding that light profit taking was likely during Asian trade. Professional speculators had hiked their net short position in COMEX gold futures and options to 17,949 contracts in the week to December 1, according to US Commodity Futures Trading Commission data on Friday. Gold is expected to ease as the dollar recovers and the days count down to the Fed decision.  Goldman Sachs and JPMorgan continue to forecast gold prices below the $1000 price in early 2016.