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What Can Investors Expect from Gold Prices in 2018?

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Part 3
What Can Investors Expect from Gold Prices in 2018? PART 3 OF 10

Will Gold Prices Fall as the US Economy Seems to Be Rising?

US jobless claims

The US weekly jobless claims edged down by 2,000 to 238,000 for the week ended November 25, 2017. This is the second straight week that the jobless claims have fallen. Economists were expecting the claims to come in at 241,000.

As seen from the November jobs report, the US economy is near full employment with the unemployment rate at a 17-year low of 4.1%. The next jobs report should be published on December 8, 2017, which is the last jobs report before the Federal Reserve’s December meeting.

While a quarter-point hike by the Fed is already locked in by the markets, the employment data could help clarify the outlook for the job market.

Will Gold Prices Fall as the US Economy Seems to Be Rising?

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US economic growth

The second estimate for the 3Q17 US GDP came in at 3.3% versus expectations of 3.2%. The original estimate has come in at 3.0%, and the economy has expanded 3.1% in 2Q17.

This uptrend is the first time since 2014 that the US economy has grown 3.0% or higher for two consecutive quarters. Business spending, as well as the accumulation of inventories, led to this rise in GDP.

US economic growth and gold prices

US consumer confidence climbed to a 17-year high in November. According to the Conference Board, the index rose 129.5 in November, higher than the 125.9 reading achieved in October.

The index level for November is also higher than the reading of 124.0 that economists were expecting for the month. Consumers are now more optimistic about the country’s labor and economic prospects. This boost in confidence could be critical for retailers (XLY), as it comes just ahead of the holiday shopping season in the US.

In our view, the US economy seems to be on an upswing, which should keep the Fed on its tightening path. Higher interest rates are usually negative for gold (GLD) (SGOL), as gold is not an interest-bearing investment.

Gold and stocks such as Coeur Mining (CDE), Pan American Silver (PAAS), Agnico Eagle Mines (AEM), and Yamana Gold (AUY) could be driven by the economic data from the US and the rest of the world going forward. These stocks have reported year-to-date losses of 29.4%, 8.6%, 3.8%, and 17.4%, respectively.

In addition to full employment, increasing inflation is one the Fed’s main objectives. In the next part, we’ll discuss the outlook for US inflation.

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