Gold drops on surprise jobs data

For the most part, last week gold traded cautiously consolidating near the higher end of the recent range amid macro and trade uncertainties until the release of the monthly US jobs report for November. Nonfarm payrolls rose 266,000 vs. a consensus 180,000 increase; US job growth increased by the most in 10 months. The reaction in the financial markets was quick and robust.

The yields on the US 10- year Treasury moved up to 1.86% from 1.79% previously, and the DXY index moved up to 97.84 from 97.38 previously, and the e-minis galloped 30 points higher. All of which weighed on gold, but it was the frothy equity market that played the prime roll in undercutting gold prices.

The surge in equity markets is the most evident barometer of “risk-on” investor appetite, which throttled potential buyers in gold and prompted selling. In addition, some indications of progress on the trade front between China and the US were also limiting gold upside ambitions before the data.

Expectations were a bit too tepid, and the final employment report of the decade was a blowout suggesting the US economy is in good shape entering 2020

Gold is likely to stay on the defensive near term.

It appears that employment growth may be holding up a bit more strongly than it previously appeared, which should have the effect of pushing out rate cut expectations further along the US curve, and bearish for gold 

Trade issues have also shifted to more negative for gold. The US administration said trade talks with China were “moving right along,” according to Reuters. Also, while President Donald Trump likes where trade talks with China are going. Treasury Secretary Steven Mnuchin said yesterday that deputy negotiators held a call in the last 24 hours and that the negotiations are on track. and the United States is not bound by an “artificial” deadline. 

The critical inference is the “artificial” deadline, this offers up a higher probability that the December 15 tariffs will be deferred. Bearish for gold 

What does this mean for gold this week?

Trade progress and the blockbuster US jobs data should keep gold trading on the defensive this week. 

FOMC

Chair Powell follow up post-FOMC statement may offer some support for gold if he fades the NFP report and reiterates the current FOMC stance that while the bar to cutting rates is high, the bar for hiking is even higher 

UK Election 

 Geopolitical issues impact gold. The bullion market may look at fresh election polls early in the week as it could give traders a heads-up if the numbers are trending in a similar direction to 2017. Last-minute sentiment swings could make this one of the most unpredictable events in some time, but it’s also without question one of the most critical events in the UK’s storied history.

Overall, however, the tide seems to be shifting against gold near term, although losses could be limited given the market view that the Feds are unlikely to raise interest rates over the medium term.

But the fall on Friday was steep. A drop below USD1,450/oz may trigger additional selling, but the more critical level may be the November low of USD1,445/oz where large stop-loss orders are thought to lurk