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Gold Prices May Continue to Fall as Fed Rate Hike Bets Swell

Gold Prices May Continue to Fall as Fed Rate Hike Bets Swell

2016-12-01 09:16:00
Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Gold prices drop on OPEC, Mnuchin appointment, ADP data
  • Crude oil prices soar as last-minute output cut deal emerges
  • Upbeat ISM survey data may boost Fed rate hike bets further

Gold prices faced renewed selling pressure as Fed rate hike bets firmed anew, driving the US Dollar higher alongside front-end US bond yields. This undermined demand for anti-fiat and non-interest-bearing assets. The move seemed to owe to the return of the so-called “Trump trade”, an OPEC output cut deal and upbeat US data in equal measure.

The appointment of Steve Mnuchin – a former banker and hedge fund manager – as Treasury secretary seemed to reassure markets. Investors may have reasoned that a seasoned finance professional ought to be well-positioned to reconcile some contradictions within Mr Trump’s economic plans, focusing on fiscal stimulus and softening potentially growth-negative protectionist impulses.

Meanwhile, ADP reported that the US added 216k jobs in November, topping expectations for a more modest 170k increase as well as the prior month’s 147k gain. The result may have driven speculation that the US economy is running hotter than previously expected even before the President-elect ramps up price growth, calling for a further steepening of the projected tightening path.

The last-minute OPEC accord did wonders for crude oil prices, sparking the largest daily advance in more than nine months, but seems to have also hurt precious metals. Higher energy prices may amplify already building inflationary pressure in the year ahead, giving Fed Chair Janet Yellen and company yet another reason to speed up policy normalization.

Looking ahead, more top tier US data is in the spotlight as November’s ISM manufacturing survey crosses the wires. Economists expect a print at 52.5, putting the pace of factory-sector activity growth at the highest in four months. Another upbeat surprise in line with recently rosy US news-flow may stoke rate hike speculation further, hurting gold and possibly capping gains for USD-denominated oil prices.

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GOLD TECHNICAL ANALYSISGold prices accelerated lower anew but failed to clear former range support so far. A daily close below the 123.6% Fibonacci expansionat 1171.83 targets the 138.2% level at 1152.30. Alternatively, a rebound above the 100% Fib at 1203.40 exposes the 76.4%expansion at 1234.97.

Gold Prices May Continue to Fall as Fed Rate Hike Bets Swell

CRUDE OIL TECHNICAL ANALYSISCrude oil prices erased last week’s losses and now look poised to test above the $50/bbl figure. A daily close above the 61.8% Fibonacci expansion at 50.05 opens the door for a test of the 51.64-91 area (double top, 76.4% level). Alternatively, a reversal below the 50% Fib at 48.55 targets the 38.2% expansion at 47.05.

Gold Prices May Continue to Fall as Fed Rate Hike Bets Swell

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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