Gold and silver moved in an unclear trend last week as Yellen’s speech cooled down the bullion market while the NFP dragged it back down. This week isn’t likely to be much different with the upcoming release of the minutes of the FOMC meeting and Yellen takes, yet again, center stage on Thursday in a panel discussion. Other events and reports that will be released include: JOLTS, factory orders, non- manufacturing PMI, and trade balance. Let’s see what’s has happened in the markets and what’s up ahead for precious metals:
Yellen’s recent comments have cooled down the talks over the possible rate hike in the coming meetings. The Chair of the FOMC voiced her concern over the global economic growth that could eventually adversely impact the progress of the U.S. economy. This news was enough to pull up gold and silver until Friday when the NFP report was released. It showed a bit higher than expected gain in jobs may have slightly rekindled a possible rate hike in June. After all, even wages picked up to an annual rate of 2.3%. This came after the number of jobs added was lower than anticipated in the previous report. Following the release of the last report gold and silver prices dropped, as presented in the table below.
Source: BLS and Bloomberg
The linear correlation between the surprise in the headline figure and percent changes in bullion prices remains strong and negative at -0.5 for gold and -0.42 for silver. The NFP will likely to resonate in the markets at the start of the week. And the upcoming JOLTS report will provide another aspect of the progress of the U.S. labor market. And then there is the minutes of the last FOMC meeting that will be released on Wednesday. It will provide another perspective as to where FOMC members stand regarding lifting rates. If the minutes show a divided FOMC this could bring back the possibility of June rate hike. And finally, the FOMC Chair Yellen will give another speech as she will be part a panel discussion at the International House, in New York. If she provides another dovish/bearish speech, as she did last week, this could provide another boost for gold and silver.
After the dovish speech by Yellen and despite the strong NFP report, the probability of a rate hike dropped: According to Fed-watch, the implied probability for a June hike fell to 26%. The chances for a hike in September also slipped to 51%. And for December, the odds declined to 65.7%.
ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) declined for the first time in roughly three months by 0.69%, week on week, to 818.09 tons of gold – still up by 27.36% year to date; silver holdings for the silver ETF iShares Silver Trust (SLV) increased by 1.1% to 333.578 million ounces.
What’s up ahead?
The zigzag in the bullion market is likely to continue in the coming days: If the JOTLS, factory orders and non-manufacturing PMI reports turn out better than expected and if the minutes of the FOMC are considered hawkish, these reports could be enough to cool down gold and silver. But if Yellen, as currently expected, voice again her concerns over the progress of the global economy and say there isn’t likely to be any rate hike soon, then bullion prices will benefit from this tone. So be prepared for another turbulent week for precious metals.
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