Gold vulnerable to further Fed tightening

Commodity prices mostly fell this week. A stronger US dollar – following the US Senate’s approval of the “Tax Cuts and Jobs Acts” last Saturday – was the main reason behind the declines in prices. Data showing robust Chinese commodity import volumes in November did little to alleviate the weakness in metals prices in the earlier part of the week. Next week, the focus will be on the Fed which is expected to hike interest rates for the third time this year, on Wednesday. Another strong gain in US non-farm payrolls in November all but guarantees a 25 basis point rise in interest rates next week. As gold prices have only just started to reflect the prospect of more aggressive monetary tightening in the US, we think that in the event the price of the yellow metal could fall further. Later in the week, investors’ attention will return to China, with the industrial output and investment data out on Thursday. We expect the data to show that the economy slowed in November, which should weigh on the prices of the more industrial commodities.