Gold and silver didn’t move in concert as they usually do during last week. The USD slightly appreciated against the majors even though the market reduced its expectations of a Fed rate hike this year – for now the chances of a rate hike are estimated in the bonds market at roughly 50% this year. But for gold the weaker dollar was enough to slightly bring back down its prices, while the strong news from China about its progress – even though such news should be taken with a pinch of salt – seems to have helped rally silver prices. This week the main event is ECB’s policy meeting. Other reports and events to consider include: U.S. existing home sales and housing starts, Philly Fed survey, EU manufacturing PMI, and German ZEW economic sentiment. Let’s take a closer look at the recent developments in the bullion market and examine what’s up ahead.
During last week there was a detachment between gold and silver, in which silver price picked up by 6% while gold slipped by 0.8%. This could indicate the main difference between the two precious metals: Silver is still an industrial metal while gold is mostly driven by investment demand. As such the solid news from China, a major importer of silver, about the progress of its economy – GDP growth rate was within market estimates, exports rose at a faster than expected pace – may have helped boost up silver prices during last week.
But this week will be different considering there isn’t any big news coming out of China. Besides the major news from the weekend over the failed meeting in Doha among Russia and OPEC members, which is likely to mostly impact oil – the other major event of the week will revolve around ECB’s policy meeting. So far the ECB wasn’t successful in devaluing the Euro against the USD. And this time ECB President will give it another shot. No major changes are expected but the meeting could result in moving the Euro if the ECB hints of more stimulus to follow. In the U.S. home sales data will be released but for now the market places even lower chances of a rate hike this year following the disappointing retail sales and low inflation growth. According to Fed-watch, the implied probability for a June raise slipped again to only 13%. The chances for a September hike also declined to 36%. And for December, the odds are at 52%.
ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) fell again by 0.65%, week on week, to 812.46 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) also decreased by 0.8% to 333.3 million ounces.
This week isn’t likely to present a much clear trend than last week did. Therefore we could still see a seesaw motion for precious metals as was the case last week – albeit mostly for gold and less for silver. If the ECB surprises with a more dovish statement than expected – because the market expects Draghi to be dovish – then this could bring back down the Euro, which could boost the USD; and in total a stronger dollar could curb down gold and silver prices. Asides from this I remain neutral on bullion in the near term.
For further reading see:
- Financial Market Preview for April 18-22
- When the Doves Don’t Cry — MM #97
- U.S. NFP For March: 215K Gain in Jobs; Unemployment Ticks Up
- Oil’n’Gold Merry Go Round –MM #91
- What’s Up Ahead for Precious Metals in 2016?
- The Fed Turns Dovish – The Dollar Comes Down
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