Gold and Silver Outlook for April 10-14

The employment situation in the U.S. is still on solid ground with unemployment dipping to its lowest level in years; and even the broader unemployment rate (U6) measure has fallen to its lowest since December 2007. But the number of jobs added was only 98K with downward revisions for the past couple of months. This news was enough to help drive up gold and silver prices on Friday despite the modest gain in long term interest rates that day. In total bullion investors are still uncertain what’s next for gold and silver considering LT yields are moving in an unclear trend and the USD is losing steam against some currencies such as the Yen but gaining against others such as the Euro. And this week entails Yellen speaking in public, consumer sentiment, CPI and retail sales reports being released. How will these events and reports influence markets?  

The recent NFP report didn’t make things ay simpler for Yellen and the Fed; the Fed would have wanted to see a higher growth in number of jobs of around 150K that will suggest the labor market is still on solid ground and the rate of unemployment is not falling any further; under this scenario the Fed could have seen this data point as another indication that the labor market shows little slack, steady rise in jobs, which should have led to higher wage growth. But this recent report didn’t do that. Instead we got no gains in the wage growth – reaching 2.7% in annual growth – and another modest fall in unemployment. So this report is a mixed bag that could suggest there is more slack in the labor market than perhaps the Fed had expected so far. But let’s not get ahead of ourselves either. This is only another data point and we will need to see a few more reports before assessing whether there is a new trend forming in the labor market or this report was just another “one-off”. As of Friday, the implied probability for a June hike has gone slightly up to 61%; and 51% chance for two hikes by December.

Gold and silver prices rose following this report albeit at a modest pace. And moving forward if long term yields were to resume their downward trend after this NFP report, this could also provide another boost to gold and silver prices. And there are reasons for LT yields to resume their downfall considering the Trump administration is slowly backing away from crafting any significant policy measures including tax and healthcare reform; and without policy changes, the government is less likely to finance its polices via debt.

This week Chair Yellen will talk publicly at the University of Michigan. Update: This talk was very interesting and covered a wide array of subjects but didn’t have any direct impact on the markets considering the talk was less about what the Fed will do next.

The main reports that will be released this week include retail sales, CPI and consumer sentiment. If these reports were to disappoint and fall below expectations, this could lead to a risk off mode in the markets that will push further up gold and silver prices.

Bottom line

The markets are still seeking direction and for now the data doesn’t provide a clear picture as to where the U.S. economy is heading. The economy is still on solid ground but whether it could sustain another couple of rate hikes by the Fed remains to be seen. If the economic data were to show that the economy isn’t moving at the same pace as expected, this could drive up the demand for assets that are considered safe haven such as gold and silver.

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