Gold prices tumbled last week to their lowest level since July 18. A strong gain in the U.S. Dollar made dollar-denominated gold a less-desirable asset. The catalysts supporting the dollar were rising U.S. Treasury yields, positive developments over tax reform, the avoidance of a government shutdown and a stronger-than-expected U.S. Non-Farm Payrolls report. Speculative money is also moving out of gold and into Bitcoin.
February Comex Gold settled at $1248.40, down $33.90 or -2.64%.
Throughout the week, gold prices were pressured by optimism over the progress towards U.S. tax reform. With Senate and House Republicans working out their differences, traders anticipate the new tax bill will be delivered to President Trump for his signature before Christmas.
On Thursday, the Senate passed a stop-gap spending measure to continue funding the federal government through December 22. The bill prevents a shut-down that would have been triggered if Congress failed to pass a spending bill before midnight Friday.
Once the two-week spending bill is signed, lawmakers will move on to the far more contentious task of passing a longer-term spending bill before December 22, when Thursday’s bill expires.
Gold prices fell on Friday after government data showed the economy created more jobs than expected in November. While the selling was mostly driven by the headline number, losses may have been limited by average hourly earnings data that analysts said were disappointing.
U.S. Non-Farm Payrolls rose by 228,000 in November. Economists had forecast payrolls rising by 198,000. Average Hourly Earnings rose five cents or 0.2 percent in November, but economists expected a 0.3 percent rise. The annual increase in wages was also weaker than forecast: the November figure came in at 2.5 percent versus a 2.7 percent expectation. The unemployment rate was unchanged at 4.1%.
The lack of wage pressure should not derail the Fed’s plans to raise rates this week, but it will certainly be a key topic of discussion as the central bank grapples with sluggish wages that reflect persistently low inflation.
Gold is under pressure mostly because of rising U.S. interest rates. However, I also think prices are weakening because of a surge in demand for crypto-currencies, especially Bitcoin. Some major investors in crypto-currencies feel that they are the “new gold”. This week, futures trading on Bitcoin begins. This means investors will be able to short the market. If Bitcoin is hit hard on investor liquidation then money may move into gold, giving prices a welcome boost.
Oversold technical conditions could also help fuel a short-covering rally in gold as well as a major sell-off in the stock market.
This week, investors will get the opportunity to react to U.S. inflation data, retail sales and a Fed meeting.
Consumer inflation is expected to show a monthly rise of 0.4%, up from 0.1%. This number won’t affect the Fed’s December interest rate decision, but it could have an influence on the number of rate hikes in 2018.
On Wednesday, the U.S. Federal Reserve is expected to raise its benchmark interest rate 0.25% to 1.50%. This has been priced into the market for at least a month. There should be no reaction in the gold market to this news, but gold prices could firm if the FOMC members express doubts about the number of rate hikes in 2018.
This article was originally posted on FX Empire
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