The bullion market showed high volatility as gold and silver rallied during most of the week until the end when the non-farm payroll report showed a higher than expected gain in number of jobs. This week the JOLTS report will be released and will provide another indicator for the U.S. labor market’s status. In Europe the second LTRO will be the main event of the week and could impact not only the Euro but also commodities prices. Besides the above-mentioned events, this week include: U.S. retail sales, EU industrial production, China’s new loans and CPI, U.S. PPI, Japan’s GDP for Q3, and U.S. consumer sentiment. Here is the economic preview for December 8th to 12th:
Last week’s recovery came after the gold and silver tumbled down a week earlier. This modest gain could change course again especially in times of high volatility as presented in the foreign exchange and commodities markets. This rally also changed course on Friday following the better than expected NF payroll report, in which 321,000 jobs were added. The table below shows the reaction of precious metals in the past couple of years to the news of the jobs market.
The correlations are negative so that gold and silver tend to follow the news from the labor market. Moreover, the correlations among the month to month change in the number of added jobs and precious metals prices also have a mid-strong negative correlation. At face value, if the number of added jobs rises on a month over month basis and the numbers exceed the expectations; this tends to correspond to the decline of gold and silver on the day of this release.
This week, the JOLTS report will also be published and will provide anther key indicator to the changes in the labor market. This report tends to get less traction than the NF payroll, but it’s still an important report worth noticing that the FOMC follows. The current expectations are for the JOLTS to rise and reach 4.81 million open jobs – back in the previous month this number was at 4.74 million.
Another positive gain in the labor market could bring further down gold and silver.
Besides this report, in the U.S. the PPI consumer sentiment and retail sales reports will be released. They could provide additional information regarding the progress of the U.S. economy.
In Europe, the targeted LTRO will take center stage. This is the second tranche of the ECB to lend cash to banks so they could lend it to boost the economy. In last week’s ECB rate decision, Draghi kept things close to the vest while clinging on to his “wait and see” approach. But his tone was still dovish enough to bring down the Euro/USD. He also hinted a potential quantitative easing program that could start by 2015. This event could move markets most notably the Euro/USD, which is correlated to gold and silver. If the Euro keeps falling against the U.S. dollar, this may bring down bullion prices.
In China, the trade balance, CPI and new loans monthly updates will be released. China’s economic progress is another factor in determining the changes in the physical demand for precious metals.
The Euro fell against the U.S dollar by 1.6% (on a weekly scale); the Australian dollar also depreciated against the U.S dollar by 2.9%; the yen depreciated against the U.S dollar by 3.4%. The correlations between these currencies pairs and precious rates remained moderately mid-strong: during the month the correlation between USD/Yen and gold reached -0.34; the correlations between Euro /USD and gold reached 0.42. These correlations suggest the recent developments in the forex markets may have had a modest effect on the shifts in gold and silver.
Gold holdings in the GLD ETF changed direction and rose to 720.914 tons by the end of previous week – a 0.46% gain; it’s still 6.6% lower than its levels recorded at end of September.
The high volatility in the bullion market may ease down, but the recent seesaw motion could continue to build up until the upcoming FOMC meeting. Until then, if the U.S. economy keeps showing signs of recovery including in the labor market, this is likely to bring down gold and silver. Finally, the changes in the Euro could also play a secondary role in curbing a possible recovery of precious metals.
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