This Friday's employment report could be a key piece of data for the gold market. Why?

The price of gold has been declining since the most recent October FOMC statement, as investors believe that the Fed will raise rates in December. According to the Fed Fund futures prices, the probability of a rate hike in December is 58 percent. That is a huge surge from a month ago, when traders anticipated only a 4.6 percent chance of a hike.

The chance of the rate hike this year was strengthened further after Janet Yellen said on Wednesday that December would be a “live possibility” for a rate hike if the upcoming data were supportive. She stated: “if the incoming information supports that expectation [that the economy will grow “at a pace that's sufficient to generate further improvement in the labor market, and to return inflation to our 2 percent target”], then our statement indicates that December would be a live possibility”.

The most recent ADP employment report, also released on Wednesday, was rather supportive as it showed jobs gains of 182,000 slightly above expectations of 180,000. There are a few more important reports before the last FOMC meeting this year, and one of them is the Friday Non-Farm Payrolls report. If job gains come in line or above the expectations of 190,000, then odds for rate hike should rise and precious metals could drop. We are skeptical about the quality of these reports, but there is no doubt that gold reacts strongly to their publication.

It is still possible that the Fed is playing all the time with the investors, but recent statements and speeches suggest that the U.S. central bank is really pushing to raise rates, just to maintain its credibility.

The key takeaway is that the probability of interest rate hike in December increased since the October FOMC meeting. The Fed seems to be determined to raise rates this year. Therefore, all but a disappointing jobs report will be negative for the gold market.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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