Further weakness seen in Gold in coming days

UNITED STATES August 09 2016 11:28 AM     

NEW YORK (Scrap Register): Citi  Research cautions that gold could fall some more in the coming days after  Friday’s stronger-than-forecast U.S. employment report showing 255,000 new jobs  in July.

Gold prices fell immediately after the report as the U.S.  dollar rose and traders factored in an increased possibility of a Federal  Reserve rate hike. In past years, negative moves in gold post payrolls have  tended to fade in the days following the data print, as shown by average  cumulative returns of 0.5% in the three days following NFP Fridays on which gold  returns were negative from 2004 to present, Citi added.

This suggests the  gold market tends to overreact to a positive payrolls number, selling off  strongly on the day, but then rallying in the following days to temper the move.  However, Citi analysts continued, this pattern has not held up through the last  two years.

In fact, since 2015, after all NFP Fridays on which gold has  seen negative returns, bullion has tended to trade lower on average in the  following days, with cumulative returns in the yellow metal three days out  averaging -0.3% (although, to be sure, this trend held true on non-NFP Fridays  as well).

This may be due to the heightened vulnerability of gold prices  to U.S. economic data in the current environment where monetary policy is highly  data-driven and Fed expectations are hinged significantly on U.S. macro  performance. In keeping with this trend, we could see a continued sell-off in  gold in the coming days as markets continue to digest Friday’s number, they  added.