Gold and Silver Forecast for August 4-8

Precious metals fell again during last week until Friday when the non-farm payroll report showed a gain of 209K in jobs – less than market expectations. Earlier this week, the FOMC decided to taper again its QE3 program and had a slightly more hawkish tone to its press release. The GDP for the second quarter was also published and presented a gain of 4% – a 180 degree shift from the first quarter. These news items may have been enough to pressure down precious metals prices. But how will this week play out? This upcoming week, the ECB will decide on its interest rate for August. In Japan, Australia and England the central banks will also convene to decide on their respective cash rate. In the U.S the trade balance, jobless claims and trade balance reports will be out. In Europe, Germany’s factory orders, trade balance and EU retail sales will be released. Finally, China’s PI and trade balance will be published. So let’s examine the economic calendar for the week of August 4th to August 8th

The FOMC meeting concluded with little surprises as it decided to cut down its asset purchase program by another $10 billion to $25 billion a month. The ongoing drop in the asset purchase program and the slightly more hawkish wording in the recent press release seem to be enough to bring back down gold and silver prices, as indicated in the table below.

FOMC statment and Gold Silver August 3 The GDP for the second quarter was also out and showed a sharp gain in GDP of 4% during the past quarter. This number was higher than anticipated and thus provided some backwind for U.S equities and drag down precious metals prices. But as stated earlier the rise in employment of “only” 209K may have been enough to bring back precious metals enthusiasts to their bullion positions.

 

Despite the market’s reaction, the U.S labor market is still progressing at a solid pace. If the U.S NF payroll keeps showing a higher than 200K gain in jobs, this could be enough to slowly drag down precious metals prices in the coming months. It seems the deviation from market expectations, however, play a role in the direction of bullion prices on the day of the release of the NF payroll monthly update.

This week, the main U.S reports are related to the trade balance, factory orders and jobless claims; they are likely to have little impact on bullion prices.

During last week, the US dollar appreciated again against the Yen, Canadian dollar and Aussie dollar. If the USD continues to rally, mainly as the upcoming economic reports show higher than expected results, it could further pressure down gold and silver.

In Europe, the ECB will decide on its interest rate for August. The ECB isn’t likely to change its policy in the upcoming meeting, but the press conference with ECB Draghi could stir up the forex markets if he were to refer to any potential changes to ECB’s monetary policy in the coming months or any shift in ECB’s outlook on the progress of Europe’s economic progress.    

Finally, during the previous week, gold holdings of SPDR gold trust ETF remained unchanged. The ETF is up by 0.08% since the beginning of 2014. Gold holdings were at 801.844 tons by the end of last week. If the ETF’s gold holdings resumes its downward trend, this may signal the demand for gold as an investment is falling. 

Takeaway

The recovery of gold at the end of last week may continue at the beginning of this week, but the general downward direction of gold and silver is likely to progress on at a slower pace on a weekly scale.

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