FUNDAMENTAL OVERVIEW Gold sold off on Friday as the very hot NFP gain with higher revisions for the prior months served as a wake-up call that the Fed could be forced to tighten monetary policy.
The job gains have been much higher than the estimated breakeven rate lately
The unemployment rate fell to an unrounded 4.29% vs 4.33% in the prior month. Following the NFP report, the market fully priced in a rate hike by year-end with the total tightening standing at 30 bps right now. We can now expect the Fed to drop the easing bias at the upcoming meeting, but the focus will be mostly on the dot plot and forward guidance.
Even though a rate hike is now fully priced in, if the Fed endorses the market pricing, it will effectively confirm that the bias has now shifted to tightening and might trigger another selloff in gold. This week, the most important event will be the US CPI report release on Wednesday (barring a surprising breakthrough in US-Iran negotiations). The question for markets is now when and how many rate hikes the Fed might deliver by year-end.