Gold and silver recovered last week following the news of the slow progress of the U.S economy: Nonfarm payroll employment rose by only 113k jobs; the manufacturing PMI decreased by 5.2 percentage points to 51.3 – this means the manufacturing sectors are growing at a slower pace than in the previous month. This could have been due to the cold weather. Conversely, jobless clams fell by 20k to reach 331k. In Europe, the ECB kept its rate unchanged; in Australia, the RBA left its rate flat but the outlook seems grim, which could suggest there won’t be additional rate cuts in the near future. These developments could have contributed to the recovery of precious metals prices. For the week of February 10th to 14th, several reports and events will play out this week including: Yellen’s testimony, U.S industrial production, Japan’s current account, EU GDP for the fourth quarter, U.S retail sales, Canada’s budget, U.S federal budget, China new loans, and U.S jobless claims.
The price of gold increased by 1.9% last week; moreover, the average price reached $1,257.74/t. oz which was 0.48% higher than last week’s average price. Gold ended the week at $1,263.2 /t. oz.
The price of silver also rose by 4.35%; further, the average weekly rate was $19.70/t oz, which was 1.54% above last week’s rate.
Herein is a short overview showing the main decisions, reports and events that will unfold during February 10th to 14th and may affect bullion prices.
Let’s breakdown the main events by leading economies:
U.S
The recent NF payroll report showed little growth in the employment for the second consecutive month. Only 113K jobs were added in January and the rate of unemployment fell to 6.6%.
The table below shows the reaction of gold, silver NS USD/Yen to the NF payroll report in the past couple of years.
As you can see, the recent NF payroll report may have had a moderate positive effect on gold and silver.
This week, Yellen will testify before House of Representatives and Senate regarding the Federal Reserve’s monetary policy. This testimony could offer some insight behind the future steps of the FOMC and thus may affect the financial markets.
Moreover, several reports will be release this week including: Retail sales, industrial production, UoM Consumer Sentiment, and jobless claims. If these reports present slower growth in the U.S economy, they could positively affect the prices of precious metals. Further, the recent depreciation of the US dollar against Euro and Aussie dollar may have also helped pull up precious metals. Thus, if the U.S dollar continues to fall against the Euro and Aussie dollar; this could moderately drag down the prices of gold and silver. The correlation between Euro/USD and precious metals had strengthened in recent weeks (during January/February the linear correlation was 0.31 – mid-strong correlation; the correlation between USD/YEN and gold is -0.61). These correlations suggest that the U.S dollar had some to do with the developments in the precious metals market.
Europe
ECB left its interest rate unchanged. This week, the EU GDP for the fourth quarter and French Industrial Production will come out. These reports could affect the Euro/USD, which could play a secondary role in the progress of the prices of precious metals.
India and China
During last week, the Indian Rupee appreciated against the US dollar. If this trend continues, it could positively affect the demand for precious metals in India.
In China, the trade balance and new loans reports will be released. These reports could offer some perspective regarding the progress of the Chinese economy. If the Chinese economy continues to slow down, this might imply the demand for commodities in this country is slowing down, which could also curb down the recent rally of precious metals.
Finally, gold holdings of SPDR gold trust ETF rose again last week by 0.49%. The ETF is still down by nearly 5.5% in the past couple of months and 0.5% since the beginning of 2014. Gold holdings were at 797.053 tonnes by the end of last week. If the ETF’s gold holdings continue to rise, this may signal the demand for gold as an investment is improving.
In conclusion…
The recent slowdown in the progress of the U.S economy as indicated by the lower manufacturing PMI and modest growth in NF payroll could have contributed to the recovery of precious metals prices. This may have opened the door for another round of speculations regarding the FOMC’s future steps including the tapering of QE3. Moreover, the ongoing weakness in the U.S equities markets continues to steer investors towards alternative investments such as U.S long term treasuries and bullion. The upcoming U.S reports such as retail sales, industrial production, and jobless claims could affect the prices of bullion; if they show the U.S economy is slowing down, gold and silver might continue to rally. The drop in the US dollar against leading currencies could have also helped pull up precious metals prices. Finally, if the demand for gold and silver as investments continue to increase, they could pull up gold and silver prices. Nonetheless, I remain neutral on gold and silver.
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