Gold and Silver Outlook for June 6-10

The NFP report made it rain again for the gold and silver as their prices recovered following the extremely lower than expected headline figure of only 38K jobs in May; even the mitigating factors (the Verizon labor dispute) could have accounted for the low number. This news was enough to bring back up gold and silver prices and nearly erase the adverse impact the hawkish FOMC minutes had on them. Now all eyes are set at Chair of the FOMC Yellen, who is expected to talk on Monday; a dovish statement could go a long way in brining further up gold and silver and driving down the chances of a rate hike this year. Other events and reports to consider this week include: U.S. JOLTS and consumer sentiment, ECB President Draghi speaks, and RBA’s rate decision Let’s see what could impact gold and silver for the week of June 6-10.

The table below shows the strong and negative relation the surprise in the headline figure of the NFP report has with gold and silver prices.

U.S.Labor June 6 2016

Source: Bloomberg, BLS

As you can see the market, as expected, reacted to the disappointing news as gold and silver prices bounced back. But this could all change if Yellen delivers a statement that isn’t dovish.

  1. Yellen talks: Considering this talk comes right after the release of the NFP report on Friday, this talk, which is expected to take place at the World Affairs Council of Philadelphia’s luncheon on Monday, will be the main event of the week. The Chair of the FOMC is expected to speak about the economic outlook and monetary policy of the Fed. Since Yellen told on numerous occasions that the monetary tightening will be “data dependent”  the last NFP report puts the kibosh on a rate hike in June – the market also adjusted accordingly with a chance of only 4%; now it all comes to whether July is still on the table. While the odds also dropped from 60% to 32%, it still means the market didn’t rule out a July rate hike. But this upcoming talk could make it so if Yellen comes out with a more dovish statement. If so, gold and silver will continue their recent recovery; otherwise, there could be a downward correction for bullion;
  2.  U.S. JOLTS: This report will come as another way to look at the direction of the labor market even though it will be eclipsed by the talk of the FOMC Chair on Monday; currently the market expects a rise in job opening to 5.82 million – any lower figure could further suggest the labor market isn’t doing as well as expected;
  3. U.S. Consumer sentiment: And finally at the end of the week the U.S. consumer sentiment report will be out. It’s likely to stir up the market unless it really comes short of market estimates – currently the index is expected to fall to 94.1; but it could have some impact if Yellen doesn’t come out with a clear dovish statement that could suggest a possible rate hike in the coming months;

As of the end of last week, the implied probability of a rate hike, based on Fed-watch, dropped to 4% in June – basically returning to the level recorded before the minutes of the last FOMC meeting came out; for a September hike the chances also fell to 44% and for December the odds declined to 60%.

ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) picked up again by 1.5%, week on week, to 881.44 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) also rose by 0.5% to 337.3 million ounces.

Bottom line

The recent labor report fell short and could be the one that steer the Fed away from raising rates not only in June but in the coming months. And Yellen could reinforce this assessment. But we should also remember that this report could also be just a “one-off” and that wages are still rising at a pace of 2.5%. So it will be too early to call off any rate hikes in the near term. Yellen may still deliver a more dovish tone talk that could help boost the demand for bullion in the short run. But if the U.S. economic data were to show improvement in the coming weeks, a rate hike come back on the table and bring back down gold and silver.

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