Volatile Gold

This week is full of critical economic data and important events. What can we expect in the gold market?

Several economic data and events this week may significantly affect the price of gold. First, the Federal Reserve Chair Janet Yellen testifies before a Congressional committee on Thursday. FOMC members, including Yellen are going to give more speeches this week, but the testimony should be the most important event, as it could signal the future Fed’s actions. The federal funds futures are almost 80 percent for a December 2015 raise (up from 50 percent at the end of October 2015), so there is more downward potential for hike odds. Thus, if Yellen is dovish enough, gold may catch its breath.

On the other hand, also on Thursday, the European Central Bank will have its first policy meeting since the Paris attacks. The ECB President Mario Draghi has signaled clearly that he will expand the economic stimulus. If the ECB exceeds expectations and increases its bond-buying program or cuts interest rates more than the investors expect, the euro will fall against the U.S. dollar. The appreciation of the greenback would put gold under downward pressure.

Friday’s monthly Employment Situation Report could be another big mover in the gold market this week. If the data for November looks strong, like in October, then investor expectations for a December hike could rise even further, exerting additional downward pressure on the yellow metal. On the contrary, an exceptionally weak report would decrease odds for a Fed hike and ease the pressure on the gold market.

To sum up, this week will be very important for the gold market. On top of the OPEC meeting, the ECB has its policy meeting, Yellen testifies before Congress and the November Employment Situation Report is published. The baseline scenario of these events is rather negative for the gold market. The ECB is believed to expand its economic stimulus, Yellen is expected to reaffirm the Fed’s move in December, while the jobs gains are forecasted to be strong enough for a Fed hike. Thus, gold will likely remain under downward pressure this week.