A big week with the FOMC meeting and jobs report for October

Traders and investors are waiting for two key events this week that will shape the direction and price of gold. The first event will begin tomorrow and conclude on Wednesday when the Federal Reserve convenes and concludes its November FOMC meeting. This will be followed by the Fed’s monetary policy statement which will contain any changes, as well as a press conference by Chairman Powell approximately ½ hour after the conclusion of their November meeting.

It is highly expected that the Federal Reserve will announce the onset the tapering of their asset purchases of $120 billion monthly. During the last FOMC meeting, the Fed revealed that they will taper purchases by $15 billion each month.

Currently, the Fed has been accumulating assets split between U.S. bonds and notes ($80B), and mortgage-backed securities ($40B). Once tapering begins they will reduce their purchases of U.S. debt by $10 billion each month, as well as reduce their assets of MBS by $5 billion each month. This means that their tapering will last a total of eight months.

However, the Fed has not addressed reducing their balance sheet, all tapering does is reduce their asset purchases. During the last recession of 2009, the Federal Reserve’s asset sheet swelled to $4.5 trillion. They also reduced their asset balance sheet from $4.5 trillion to $3.7 trillion, until the Fed perceived further reductions would have a detrimental effect on the economy. Over the last year and a half, the Fed has been aggressively adding to their balance sheet which has now more than doubled to $8.6 trillion.

It is also believed that the Federal Reserve will not begin lift-off until they have ended the tapering process which will most likely occur in June or July.

The second key event will occur on Friday when the U.S. Labor Department releases its nonfarm payroll jobs report for October. The September jobs report came in well below expectations and predictions by economists polled by the Wall Street Journal. The forecast for last month’s jobs report was that it would result in an additional 450,000 Americans being employed by nonfarm payroll jobs. However, the actual numbers came in at a tepid 194,000 jobs added, clearly showing the impact of the Covid 19 Delta variant and labor market shortages.

The current forecast for November’s jobs report is that an additional 450,000 new jobs will have been added in October. However, the forecasts have come in well below expectations over the last two months. In September the U.S. Labor Department reported that there were an additional 317,000 new jobs added, below the Bloomberg poll of economists which came in expecting 400,000.

As of 5:40 PM EDT gold futures basis, the most active December 2021 contract is fixed at $1794.60, after factoring in today’s $10.70 gain. On a technical basis, the first level of resistance is at $1800 per ounce.

After breaking above that key psychological level, it was reported that large hedge funds shorted gold futures moving gold back below $1800, to hit an intraday low on Friday of $1772. Today gold opened at $1785.30, traded to a low of $1780.20, and recovered to current pricing about six dollars shy of $1800. Above $1800 the next level of resistance occurs at $1836 which corresponds to the highs achieved at the beginning of September. Current support levels begin at the 50-day moving average which is currently fixed at $1782, followed by Friday’s low of $1772. Major support for gold is at $1748 and $1720.

Wishing you, as always, good trading and good health,