Gold Prices Maintain Downside Bias

Despite weakness in the dollar in today’s session, gold prices maintained a downside bias, with the contract for February 2017 settlement on the COMEX division of the New York Mercantile Exchange dropping another 0.38% today with a close at $1,169.4. This follows yesterday’s decline of 1.4%.

Today’s drop in gold prices follows another strong economic report which bolsters the case for an increase in interest rates at this month’s FOMC meeting. Earlier today, it was reported that the US ISM manufacturing index rose to 53.2 for November from 51.9 in October. This was the strongest reading for five months and above expectations of a more modest increase to 52.1. Of the 18 manufacturing industries, 11 reported growth for November. New orders increased to 53.0 from 52.1 with production rising to 56.0 from 54.6 previously.

Today’s ISM data follows Wednesday’s better-than-expected report from payroll services provider ADP, which indicated 216,000 new jobs were added in the private sector during the month of November, the strongest addition since June. The data was much higher than the downwardly revised 119k (revised from 147k) reported in October and also well above the 165k analysts were expecting, according to a Thomson Reuters survey. This sets a positive tone for tomorrow’s release of November nonfarm payrolls.

Also reported yesterday was the November Chicago PMI index, which increased sharply to 57.6 from 50.6 the previous month. This was well above consensus expectations of an increase to 52.2 and the strongest reading since January 2015.

At present, fed fund futures are pricing in a 98.6% probability of a rate hike at the December 13-14 FOMC meeting. The high probability of tighter monetary policy in the months to come should continue to weigh on gold prices.

Weak rebounds have plagued gold prices in recent weeks, thereby keeping the intermediate term bias for the precious metal firmly to the downside. And, with this week’s decline to new reaction lows, gold remains at risk for a further drop to the next clear level of support on the weekly chart at the December 2015 low at $1,055.2 an ounce.

On the upside, first resistance is at the $1,200 level. A failure of any near term bounce to clear the $1,200 level would underscore gold’s weak technical condition and leave the broader bias for the precious metal firmly to the downside.

Tomorrow, all eyes will be on the US nonfarm payroll report for November. This figure will be particularly important given the expectations for a rate hike in December. Consensus estimate is for an increase of 180K jobs. A stronger-than-expected report would be further supportive of a rate hike, thereby resulting in a continued slide in gold prices.

February 2017 Gold Daily/Weekly Charts

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About the author

Tracy Morganthall, CMT

Tracy L. Morganthall, CMT, has been a Technical Market Analyst for more than 20 years. She has experience analyzing and producing reports on equities, both domestic and international markets, as well as Forex and commodities. She attended Trenton State College in Trenton, New Jersey, earning a Bachelor's in Finance.

Indices

NamePrice($)CommentChange($)Change %
S&P 5002,192+0.87+0.04%
NASDAQ5,256+4.55+0.09%
NYSE10,839+9.59+0.09%
FTSE 1006,730.72-22.21-0.33%
DAX10,513.35-20.70-0.20%
CAC 404,528.82-31.79-0.70%
EURONEXT 100872.00-5.61-0.64%
Nikkei 22518,426.08-87.04-0.47%
HANG SENG INDEX22,564.82-313.41-1.37%

Commodities

NamePrice($)Change($)Change %Comment
Light Sweet Crude Oil Futures,D47.48-0.01-0.02%
Gold Dec 161,175.70+8.80+0.75%
Silver Dec 1616.75+0.32+1.94%
Copper Dec 162.62-0.01-0.36%