Good morning, traders. Welcome to our weekly preview of the macroeconomic data and major narratives that matter for the gold markets for this, the first week of the last month of the year.
After some back-and-forth trading during the overnight sessions, gold and silver prices are lower to begin Monday morning as equity markets in Asia and Europe have made gains for the day (although, just after the cash open here in the states the Dow and S&P indices have both turned lower, providing a minor lift to the gold chart.)
The key narrative this morning, and the reason for the increase of risk appetite overnight, remains the health of international trade. Global markets are so far cautiously cheering the news that the Chinese government’s initial retaliation for the signing of a US bill in support of Hong Kong’s pro-democracy protests has not included tariffs or other punitive trade measures. At the same time, the day barely got started in Washington before Donald Trump announced a new round of tariffs on South American trade partners; clearly, in trading assets like the precious metals which are so sensitive to trade risk right now, this is going to dominate our focus in December (especially with new tariffs still scheduled to take in less than two weeks.)
For now, let’s take a look at was else is on our mind this week.
US Economic Data to Watch
Monday, December 2 at 10am ET // ISM Manufacturing PMI (Nov)
[consensus expectation: 49.5 // previous: 48.3]
The headline for October’s manufacturing PMI was that it printed the first increase after six consecutive months of decline. With an overall positive look from regional manufacturing surveys in November, this time around the hope will be for non-contractionary (above 50.0) print for the first time since the summer; based on analysts surveyed it could be a close call. With the risk appetites starting this week on the right foot, that kind of “good news” might accelerate any Dollar-up-gold-down moves before lunch.
Wednesday, December 4 at 8:15am ET // ADP Employment Report (Nov)
[consensus exp.: +155k // prev.: +125k]
The assumption that the number or new private-sector jobs added moved (slightly) higher in November is driven by a couple macro factors that we’ll touch on below in discussing the monthly jobs report. For now, it seems fair bet that the ADP number will come in within close orbit to 140-150k, which ought to be a non-event for risk markets. Of course, if there’s a blow-out to one side of the survey or the other we’ll be forced to recalibrate our expectations of a vanilla Jobs Report.
Wednesday, December 4 at 10am ET // ISM Non-Manufacturing PMI (Nov)
[consensus exp.: 54.5 // prev.: 54.7]
Because we don’t have a slew of regional service sector PMI (as we do with the manufacturing variant) to consider, estimating ISM headline number is mostly just that—an estimation. The consensus this time is calling for a flat-ish number. I think the kind of move to the upside that would influence gold (and Dollar) prices—something like 55.0 or higher—is very unlikely. Slightly more believable (though I will argue still improbable) would be a dip below 50.0 into a contractionary reading. That would certainly be a tailwind to gold as risk appetite drains from the market.
Thursday, December 5 at 8:30am ET // Initial Jobless Claims
[consensus exp.: +215k // prev.: +213k]
Looks like we’re back to weekly jobless claims mellowing out around the long-term trend.
Friday, December 6 at 8:30am ET // November Jobs Report
[(non-farm payrolls) consensus exp.: +190k // prev.: +128k]
[(unemployment rate) consensus exp.: 3.6% // prev.: 3.6%]
Macro factors and historical trends point towards a notable increase in NFP this month. In terms of macro, employer survey data implies at least some level of optimistic staffing driven by October’s (sporadic) positive trade developments, as well as a considerable boost provided by the end of the General Motors strike. As for the historical view, Goldman Sachs points out that November is typically a strong month for adding jobs:
“…November payroll growth tends to accelerate in tight labor markets, as labor supply constraints may incentivize firms to pull forward hiring or reduce end-of-year layoffs.”
Assuming that NFP comes in within a reasonable touching distance of expectations, this is set up to be a bullish signal for the US Dollar and a sell signal for gold (along with other non-Dollar safe havens.) Just how much weakness we’ll see in gold will depend on where the yellow-metal is trading ahead of the release—if gold is holding just above a major psychological level (like $1450/oz,) a break below it could create some stronger selling momentum.
There’s not much to say about the unemployment rate. It remains so low that it’s hard to imagine what a meaningful decline would even look like, and it would take something over 4% to spur safe haven buying.
Friday, December 6 at 10am ET // Univ. of Michigan Consumer Sentiment (Nov)
[consensus exp.: 97.0 // prev.: 96.8]
Consumer Sentiment has been increasing since the summer driven mostly, I would argue, by the stock market’s seemingly unstoppable if uninspiring march higher. As risk-markets become numb to the trend, a print above expectations for November is unlikely to impact the gold market; but unexpected drop that breaks the upward trend could see some risk-averse gold buying to cap the week (this also depends to some degree on how the week actually plays out and the mood that the markets are in when wrapping up the week’s trading.)
And that’s how the first week of the last month of 2019 looks. I wish you the very best of luck in your markets this week, and I’ll see you all back here on Friday for a recap of trading in gold.