Gold prices in focus following sharp bearish reversal

• Gold prices are in focus following sharp NFP drop and positive trade-deal sentiment. 
• US dollar bounced in line with yields following the strong employment report.

Gold prices on Friday suffered a steep drop with the price falling from a high of $1,480.20 to a low of $1,458.77 following a better-than-expected Nonfarm Payrolls report which sent the US dollar and stocks higher. 

In Asia, gold remains in the vicinity of Friday's closing prices on what is set to be a busy event schedule saturated in trade deal sentiment as the 15th December approaches fast, a date for which has been set as deadline that will determine whether there is a trade deal or new tariffs on Chinese goods.

US NFP knocked gold’s recent rally back down to size

Meanwhile, the strong US Nonfarm Payrolls data knocked gold’s recent rally back down to size. The headline rose 266k in November, surging past expectations by a huge 86k margin with October revised by +28k. Additionally, the unemployment rate fell from 3.6% to 3.5%, underemployment fell from 7.0% to 6.9%, although the participation fell from 63.3% to 63.2%, albeit within the upward trend.  Hourly earnings rose 0.2%mth, 3.1% YoY.

The US dollar bounced in line with yields on the strong employment report and US stocks lifted the benchmarks into a positive close, with S&P index +0.91, NASDAQ index +1.0% and the Dow industrial average +1.22%.

Indeed, the data has gone to reduce bets of a rate cut from the Federal Reserve so soon, certainly not on December 11th, although due to a mixed outlook and a data-dependent Fed, markets are still pricing a terminal rate of 1.28% vs the Fed’s mid-rate at 1.63% currently. As for US two-year treasury yields, these had risen from 1.58% to 1.64% following the data, settling at 1.61%. The ten-year yields rose from 1.79% to 1.86%, settling at 1.84%. 

"The Fed's asymmetric reaction function suggests they will either cut rates further if growth disappoints or stay the course if growth recovers, ultimately pressuring real rates further. This lends strength to the view that gold will continue to bounce higher into 2020 as momentum strategies make a comeback — CTAs are eyeing a break north of $1500/oz to add to their length," analysts at TD Securities argued, adding, "We suspect that a break north of this range would kickstart the next leg of the yellow metal's rally." 

Sino/US trade deal on track

On the trade front, the state-run Xinhua News Agency said that China’s State Council began the process of exempting some soybeans and pork imported from the US from punitive tariffs, also helping to boost sentiment on Friday and underpinning the recent confirmation from Beijing that indeed a 'phase-one' deal is "on track".

Gold levels