U.S. Fed Move: Gold Aside, What Will Other Precious Metals Do?

 | Dec 02, 2022 06:11AM ET

With the U.S. nonfarm payrolls (NFP) report for November due soon or out by the time you’ve read this, remember there are two timelines for precious metals to react to the report.

They are:

  • The short timeline: Covering just today, or the Dec. 2 trading session of COMEX metals futures as well as spot gold, spot silver, spot palladium, and spot platinum.
  • The longer timeline: A 10-day period, starting with the Dec. 5 trading week and concluding with the Dec. 14 decision day for the Federal Reserve’s next rate hike.

These timelines may seem obvious to any trader, yet there are reasons to reinforce them as they will decide price elasticity in the given durations.

There is an overwhelmingly high expectation that the Federal Reserve’s rate-setting meeting will opt to slow the pace of U.S. rate hikes should the November NFP report show a meaningful drop in monthly job gains and average hourly earnings of Americans.

The Fed blames the runaway inflation of the past two years partly on the heady job and wage growth since June 2020, when the labor market began rebounding from the worst impact of the coronavirus pandemic.

At the time of writing, the expectation is that the November NFP report will show a gain of 200,000 jobs, which, if correct, will be the smallest monthly job gain since December 2020.

For the purpose of projecting bullish and bearish outcomes, we will present two potential scenarios where the November job gains are 25,000 plus-minus on both sides—meaning 225,000 and higher or 175,000 and lower.

We will also incorporate the potential reaction of the Dollar Index to both scenarios since the performance of the greenback will largely determine the direction for most precious metals; i.e., a selloff in the U.S. currency would likely trigger a rally in gold, and vice-versa.

The Dollar Index has already traveled from November’s peak of 113.05 to an anticipated low of beneath 105 when it struck a 3½-month bottom at around 104.6 on Thursday.

Bond yields benchmarked to the 10-year Treasury note, which typically moves in line with the dollar, hit a three-month low of 3.54% on Thursday.

Precious metals, led by gold and silver, meanwhile, have gained as much as 3% in Thursday’s trading alone as easing indicators on U.S. inflation and jobs growth pointed to the likelihood of smaller Fed rate hikes hereon.

As is often the case with outsized moves in any asset, expect some compensatory adjustments in the following or imminent sessions—meaning gold longs could take profit on Friday even if the NFP delivers a sharply-lower-than-expected jobs growth number while dollar shorts could cover.

To ensure we focus on the most liquidly traded areas of the four precious metals, our forecasts will be on spot price for gold and silver and futures for palladium and platinum.

Our projection for the Dollar Index and the four precious metals are as follows: