Gold and silver didn’t perform well last week as the NFP report showed, once again, a better than expected headline figure with a growth of 255K jobs – compared to an expected gain of 180K; also, the BOE, as expected, cut its cash rate but also augmented its asset purchase program, which is likely to keep pressuring down the British pound. This week, besides digesting the latest NFP report, the main events of the week include: U.S. JOLTS, German GDP for Q2, U.S. PPI, retail sales, and consumer sentiment. Let’s breakdown the week ahead for gold and silver:
The recent NFP report presented another strong gain in jobs and even wages edged up by a higher than anticipated percentage.
Source: Bloomberg, BLS
In total, this could suggest the U.S. labor market is heading towards full employment so a rate gain is still on the cards for the FOMC this year, as indicated by the recent updated figures by Fed-watch: By the end of last week, the implied probability of a rate hike in September rose to 18%; and for December the odds of a hike have also picked up again to 45%. This news is likely to keep driving up the U.S. dollar and hold back interest rates from resuming their downward trend — which doesn’t vote well for the direction of gold and silver in the short term.
And if the upcoming U.S. economy figures – mainly retail sales and consumer sentiment – show a higher than expected gain they could further strengthen the USD and bring back up long term treasury yields. Currently, the market expects core retail sales to rise by 0.2% and total retail sales by 0.4%; consumer sentiment is expected to bounce back to 91.5.
Besides the direction of yield and USD and what will the Fed do next, it should be pointed out that the BOE’s decision to slash rates and raise its asset purchase plan will also play a role in mitigating some of the uncertainty in the markets vis-à-vis the adverse impact of a Brexit on the markets – something that could also impede the progress of the gold and silver market. Finally, China could regain some headlines this week as exports and imports figures weren’t impressive and the PBOC plans to introduce more stimulus – something that could shake up the market as it did back in August last year.
ETFs holdings: By the end of the previous week, gold holdings of the gold ETF SPDR Gold Trust (GLD) rose by 1.58%, week on week, to 973.21 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) also increased by 0.3% to 350.815 million ounces.
The market is revising its outlook about the direction of the USD – mainly on account of the NFP and BOE’s rate decision – and the chance of a rate hike in 2016 by the FOMC. This turn of events is likely to keep weighing down on the bullion market; unless the market sentiment were to shift back to risk-off mode, which could come about, yet again, on Friday if U.S. retail sales fall short of expectations or the latest figures from China could trigger another bear market.
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