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

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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:

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:

Dollar Daily

All charts by SKCharting.com, with data powered by Investing.com

US Dollar Index

As aforementioned, the Dollar Index struck a 3-½ month bottom of around 104.6 on Thursday.

November NFP of 225,000 new jobs or more:

Oversold weekly stochastics of 0.5/8.7 on the Dollar Index can call for a short term pull rebound towards 105.50, followed by the 5 week Exponential Moving Average (EMA) target of 106.50.

November NFP of 175,000 new jobs or less:

Likely to trigger a further selloff in the Dollar Index, toward the 104.40 target first, followed by 103.50.

Spot Gold Daily

Spot Gold

Gold smashed through the 200-Day Simple Moving Average (SMA) of $1,796 on Thursday and also cleared through the 100-week SMA of $1,800 to test an intraday high at $1,804.5.

November NFP of 225,000 new jobs or more:

Can initiate a brief correction towards the 5-Day EMA of $1,781, followed by the 50-week EMA of $1,771 and horizontal support at $1,766.

November NFP of 175,000 new jobs or less:

Can extend gold’s rally towards $1,821 and $1,842.

Spot Silver Daily

Spot Silver

Silver’s rebound began even before Thursday’s leap in gold. Spot silver hit a seven-month high of $22.74 an ounce on the first trading day of December, beginning the month with a 5% gain after rising almost 14% in November.

A softening dollar could further boost spot silver, helping it test the 100-week SMA of $23.40.

Overbought conditions on spot silver’s daily chart could, however, trigger some profit-booking, either at current heights or on a further test of the 100-week SMA of $23.40.

November NFP of 225,000 new jobs or more:

Could push spot silver down towards the 5-Day EMA of $22.26.

November NFP of 175,000 new jobs or less:

Could extend spot silver’s rally towards $23.40.

Palladium Daily

Palladium Futures

Contrary to gold’s overwhelming safe-haven status, palladium is largely an industrial metal—an autocatalyst actually for gasoline-run cars—putting it in a position to perform well in an environment of bullish U.S. jobs growth.

Palladium has also not gained as much as gold and silver in the run-up to Friday’s NFP report. As such, it might be doing some catch-up after this, depending on how the job numbers turn out.

November NFP of 225,000 new jobs or more:

Could help palladium futures overcome the swing high resistance of $2,113. Demand-backed momentum can take prices further up towards the next major resistance of $2,360.

November NFP of 175,000 new jobs or less:

Could keep palladium futures confined under $2,113. Even if breaks above that level, prices are likely to face rejection from the $2,360 resistance, due to weak economic sentiments.

Platinum Daily

Platinum Futures

While also an autocatalyst like palladium, but for diesel engines, platinum is only part industrial metal as it has heavy jewelry applications as well.

Thus, unlike palladium, platinum has gained on the back of the weakened dollar and could follow gold and silver higher if the NFP report turns in weaker job prospects.

November NFP of 225,000 new jobs or more:

Can cause platinum futures to drop towards $1,020 and $1,000 an ounce.

November NFP of 175,000 new jobs or less:

Can help platinum futures test $1,120 and $1,160.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.

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