Price of Gold Fundamental Weekly Forecast – FOMC, Jobs Data Will Move Yields, Setting the Tone

Gold futures finished strong the last week of the year, but you have to take the price action with a grain of salt since the volume was extremely light with most of the major players on the sidelines ahead of the New Year holiday. In a thinly traded market, it’s not difficult for a computer program to manipulate prices to look attractive to buyers.

Last week, February Comex gold settled at $1828.60, up $16.90 or +0.93%. The SPDR Gold Shares ETF (GLD) finished the week at $170.95, up $1.98 or +1.16%.
This week, the primary focus will be on Treasury yields and the U.S. Dollar. The catalysts driving the price action in these markets will be ISM Manufacturing PMI, the JOLTS Job Openings report, the FOMC Meeting Minutes, the ISM Services PMI report and the Non-Farm Payrolls report.

Gold Traders Will Be Eyeing U.S. Non-Farm Payrolls Report
On Tuesday, the ISM Manufacturing PMI report is expected to come in at 60.4. This is down from the previously reported 61.1. No big deal, in my opinion. The number is still strong and well-above the 50 level which separates expansion from contraction.

Also on Tuesday, the JOLTS Job Openings report will be released. This report is closely watched at the Federal Reserve and elsewhere for signs of labor market tightness. Last month, the level of jobs openings accelerated to just below its all-time high. That number totaled 11.03 million, an increase of 4.1% as the rate rose to 6.9% from 6.7%. The number of openings exceeded those looking for jobs by 3.6 million in October.

A number above 11.03 will be supportive for gold prices. A plunge below 10.00 could put pressure on prices. A large number won’t derail the Fed’s plans to accelerate the tapering of its stimulus, but it could give policymakers some flexibility with its first rate hike.

A high number will mean the Fed could wait until perhaps June before making its first rate hike. This could support gold prices. A relatively low number may encourage the Fed to move up the date of the first rate hike to March. This could put pressure on gold prices.

Traders will be looking at the FOMC Meeting Minutes on Wednesday for clues as to the pace of future rate hikes. At its policy meeting in December, the Fed announced it would quicken the pace of its tapering and could raise rates as many as three times in 2022.

Thursday’s ISM Services PMI report is expected to come in at 67.2, down from 69.1. Traders will be looking at this report for any evidence of an Omicron-related slowdown.

Finally, Friday’s labor report is expected to reveal the economy added 410K jobs in December, up from 210K. The Unemployment Rate is expected to fall to 4.1% from 4.2% and Average Hourly Earnings are expected to have risen by 0.4%.
Weekly Outlook
The major catalyst behind the price action in gold is the timing of the Federal Reserve’s first rate hike and subsequent rate hikes. This is influencing the movement in Treasury yields.

Gold prices will be pressured if yields indicate a March/April rate hike. Gold prices will find some support if the financial markets price in a June rate hike.

Controlling the direction of yields this week and consequently the timing of the first rate hike and the direction of gold prices will be the data derived from the Fed minutes, and the U.S. Non-Farm Payrolls report.

If there are more jobs added than estimated then this could encourage the Fed to raise rates sooner-than-expected. This would put pressure on gold.

If there are fewer jobs added then gold is likely to be underpinned since this could delay the Fed’s first rate hike.