Gold may trade weaker next week on strong US jobs data, healthy risk appetite

On Friday, spot gold closed up $1 at $2633. The metal was down about 0.40% this week, its second straight weekly loss. It traded in the range of $2613 (December 6) to $2657 (December 4).

Data roundup

US employers added 227K jobs, beating forecasts of 220K, as October data was revised up 12K to 36K, a two-month net improvement of +56K. Average hourly earnings rose 0.4% mom and 4.2% yoy, topping respective forecasts of 0.3% and 3.9%. Labor force participation at 62.5% was lower than the estimate of 62.7% and earlier data of 62.6%. The government hired 33K workers. The unemployment rate rose to 4.2% from 4.1% in October. Overall, by contrast, the nonfarm payrolls report was somewhat encouraging, dispelling fears of a sharp slowdown in the job market as October’s report was quite weak. However, the household survey showed a weaker jobs picture as it reported a decline of 355K jobs compared to -368K jobs in October. University of Michigan sentiment at 74 topped forecasts of 73.2 as one-year inflation expectations of 2.9% were warmer than estimates of 2.7%. A weaker outlook for gold was supported by falling US yields.

The ISM services index data released earlier in the week at 52.1 was much weaker than the forecast of 55.70 as ISM prices were stronger than forecast. JOLT’s job opening (October) was better than expected.

ETF Holdings

Total known global gold ETF holdings were higher at 83.022M/oz on December 5 but lower than the 83.142M/Oz level seen in the week ended November 29, thus, a net outflow in overall holdings so far this month.

Geopolitics

Geopolitical tensions remain elevated, though somewhat contained. Russian President Putin said Russia could deploy its newly developed nuclear-capable hypersonic Oreshnik missiles to Belarus next year as it ramps up its production. Meanwhile, mass protests in Georgia over the government’s decision to suspend EU accession talks entered a second week as a police crackdown on protesters intensified. Syrian rebels aiming to topple Assad’s regime wrestled key cities from government control as Aleppo and Hama fell from Assad’s control.

US dollar and yields

US yields, taking cues from the unemployment rate, eased after the release of the US nonfarm payrolls report on expectations that the Fed will cut rates further at its next FOMC meeting on December 18. Ten-year US yields closed at 4.15%. Friday, down 2 bps on both daily and weekly basis. The 2-year yield at 4.10% was down 0.89% on a daily basis and around 1.50% on a weekly basis. The US dollar index closed up about 0.25% on Friday at 105.97 and was up around 0.25% for the week.

Upcoming data and events

Next week, traders will mainly focus on US CPI and PPI (November). China’s CPI, PPI, trade balance and new yuan loans (all November) will also be on their radar. The ECB and the Swiss central bank are expected to cut their key rates by 25 bps in their monetary policy decision on December 12. GDP data from the UK and Japan is also due next week.

Outlook

Barring any fresh major geopolitical developments, gold may be lower at the start of the week on encouraging jobs reports and healthy risk appetite. However, the downside may be limited to geopolitical risks and the upcoming US FOMC meeting and the release of US CPI and PPI data. At the same time, the upside seems limited unless the metal is able to hold firm resistance at $2675. Support is at $2613/$2595/$2575. Overall, range-bound trading is expected to continue unless geopolitical tensions flare uncomfortably or US inflation data turns hotter than expected. Weak inflation data will raise concerns about the US economy and in that case gold could rise.

(The author is Associate Vice President, Fundamental Currencies and Commodities at Meera Asset Sherkhan)

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