The prices of gold and silver changed direction and plunged last week despite the modest depreciation of the U.S dollar against leading currencies. Will gold and silver resume their downward trend? For the week of June 2nd to 6th, the main economic reports from the U.S to be released include non-farm payroll, non-manufacturing and manufacturing PMI, factory orders and jobless claims. In Europe, the ECB will announce its updated monetary policy. In Canada, BOC will decide its rate for June and Canada’s employment report will be published. Let’s start with a quick overview of last week’s outcomes and then examine the expected developments, events and reports for the forthcoming week.
During last week, the price of gold declined by 3.55%. Gold ended the week at $1,245.80 /t. oz. The price of silver, much like gold, fell by 3.66%.
Currencies / Precious Metals Correlations – May/June Update
During last week, the US dollar slightly depreciated against leading currencies e.g. the AUD/USD currency pair rose by 0.86% to 0.931. Moreover, the U.S dollar depreciated against other currencies such as Euro, yen and Canadian dollar by 0.04%, 0.2% and 0.14%, respectively. The correlations among gold, silver and leading currencies pairs weren’t strong during May as indicated in the chart below.
Based on the above, the recent depreciation of the U.S dollar didn’t pull up gold and silver.
Herein is a short overview showing the main decisions, reports and events that will come to fruition during June 2-6 and may affect the precious metals market.
Let’s breakdown the main events, speeches and reports by leading economies:
This week, several reports will be released, which could stir up the bullion market, mostly notably the non-farm payroll report.
The table below shows the changes in the prices of gold and silver following the release of the U.S employment.
In the previous report, the number of non-farm payroll employment rose by 288k – higher than the number many anticipated; the U.S unemployment rate plummeted to 6.3%. In the past couple of reports, which were mostly positive, gold and silver rallied. But on average, a positive release tends to result in drop in bullion prices. Therefore, if employment grows again by over 200 thousand (in additional jobs), this may strengthen the U.S dollar and U.S stock markets; this news could also have a negative impact on precious metals rates.
Several U.S economic reports will be released including jobless claims, manufacturing and non-manufacturing monthly updates and factory orders. If these reports also show the U.S economy is recovering, they could pull up U.S equities and steer investors away from bullion.
ECB will decide its interest rate for June in this week’s meeting. Some analysts expect the ECB might (finally) decide to reduce its deposit rate to a negative one or perhaps another reduction in its cash rate, which currently stands on 0.25%. In such a case, this news could drag down the Euro/USD, which could have an indirect impact on bullion prices (via the forex markets).
The final HSBC estimate of China’s manufacturing PMI will be published this week. Last month’s PMI was well below the 50 mark, which means the manufacturing sectors in China aren’t expanding. If this report shows no rise, this could indicate China’s economy isn’t recovering, which will suggest its demand for bullion has diminished in recent months.
During the previous week, the Indian Rupee slightly fell against the US dollar. If the rupee further depreciates, it could soften the demand for precious metals in India.
Finally, during last week, gold holdings of SPDR gold trust ETF rose by 1.1%. The ETF is still down by 2% since the beginning 2014. Gold holdings were at 785.27 tons by the end of last week. If the ETF’s gold holdings keep rising, this may signal the demand for gold as an investment is strengthening.
The main events of the week will revolve around the U.S non farm payroll report and ECB rate decision. Further, the publications of the U.S manufacturing PMI and factory orders could also play a secondary role in the financial markets. Based on the upcoming news and recent developments, I think gold and silver will resume their downward trend.
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