Gold and Silver Outlook for February 29-March 4

The recovery of the U.S. dollar – in part due to growing concerns over a Brexit and several better-than-expected U.S. data figures such as GDP for Q4 – held back gold and silver prices. Some of the positive U.S. reports also contributed to modest gain in the odds of the Fed raising rates in the coming months. The recent shift in market sentiment — away the bearish sentiment – could change course again if the upcoming economic reports don’t meet market estimates including China’s manufacturing PMI and U.S. non-farm payroll report. But these aren’t the only reports to consider, other reports include: U.S. manufacturing and non-manufacturing PMI, FU flash CPI, U.S. factory orders, GB manufacturing PMI, and U.S. pending home sales. Here is an outlook for gold and silver for the week of February 29- March 4:

The upcoming NFP will be the main event of the week, and is likely to move not only the USD but also gold and silver. Last time, the NFP was a mixed bag: the headline figures didn’t meet market estimates at only 151K compared to 189K, but wages, unemployment rate and participation rate rose from the preceding month.

U.S.Labor Feb gold 2016

Source: Bloomberg, BLS

This could explain why gold and silver didn’t react much to the last NFP report, as presented above.

This time, the market expects the headline figure will be 195K. If the figure falls short and other major indicators – most notably wages’ growth falls to an annual rate of well below 2.5% – disappoint this could pull back up precious metals prices.

Another key reports in the U.S. are the manufacturing and non-manufacturing PMI, they are forward looking indicators and currently are expected to fall and remain below 50 point mark; if they come even below expectations, this could raise the concern of a possible economic slowdown – a shift that could benefit bullion prices.

Finally, China’s manufacturing PMI will also be released and could shift back the focus to China. If China returns to the spotlight about its possible slower growth rate, this could also help bring back the bearish market sentiment.

As of last week, based on Fed-watch, the implied probability for a March rate rose to 12.4%; for June the chances of a hike increased to 21%. And for the December meeting, the market estimates the odds of a rate hike grew back to 56% — the highest level in a month.

ETFs holdings: By the end of the previous week, gold holdings of the gold ETF SPDR Gold Trust (GLD) rose for the eighth straight week, this time by 4%, week on week, to 762.41 tons of gold –up by 18.69% year to date; silver holdings for the silver ETF iShares Silver Trust (SLV) edged up by 0.2% to 311.6 million ounces.

Bottom line

The recovery of the USD, equities suggested the markets have taken a pause of the talk over the global economic woes. And even the chances of a Fed rate hike this year picked up: If a couple of weeks ago the market estimated nary a hike in 2016, last time the odds grew to a possible single rate raise by December. But it’s worth noting that the recent recovery may not last long especially if the economic data coming from the U.S. and China disappoint. And keep in mind that the long term interest rates are still coming down, which will help keep up gold and silver. Conversely, the concerns over a possible Brexit will continue to occupy the news and help pull up the USD against the Pound and Euro – a shift that could curb down any rally for bullion.

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