Gold and Silver Outlook for September 5-9

Gold and silver didn’t do much throughout most of last week until Friday when the non-farm payroll report presented a gain of only 151K jobs – lower than expected – and even the annual growth in wages also fell short – with only 2.4%, year over year, which was a drop in the growth rate from the previous month. Does this mean gold and silver are moving upward moving forward? This week’s main event will be the ECB rate decision; other events and reports that will unfold include:    RBA and BOC rate decisions, U.S. JOLTS, U.S. non-manufacturing PMI, and Canada’s employment report. So let’s breakdown what’s next for gold and silver for the week of September 5-9:

The recent NFP report affected the market estimates of the chances of a rate hike this year: As of the end of last week, for September the implied probability of a rate hike declined to 21%; and for December the odds have fallen to 50%. Following this news the prices of gold and silver bounced back, which only maintained the strong and significant negative correlations between the surprise of the headline figure and bullion prices.

U.S.Labor Sep 5 2016Source: LBS, Bloomberg

This news is likely to continue to resonate in the financial markets – especially in the U.S. – at the start of the week. And considering there aren’t major reports coming out of the U.S. except the JOTLS report, which will present data from July, and the non-manufacturing PMI, the recent NFP report is likely to keep slowly pushing down the odds of a rate hike this year. For gold and silver this news is likely to reignite the demand for bullion. But this week’s main event will be the ECB rate decision: The market doesn’t expect the ECB to introduce any major new policy measures such as another rate cut or augment to the QE program; the only major chance currently expected, at best, is an extension to ECB’s QE program. If so, this may have some modest adverse impact on the Euro, which could impede the recent rally of gold and silver.

ETFs holdings: By the end of the previous week, gold holdings of the gold ETF SPDR Gold Trust (GLD) declined by 2%, week on week, to 937.89 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) rose again by 0.8% to 359.585 million ounces.

Takeaway

Gold and silver prices are likely to keep gaining momentum considering the markets are cutting the odds of a rate hike for this year in general and in September in particular. And since this week doesn’t entail any major news coming out of the U.S., bullion prices are likely to continue their slow recovery. Finally, the ECB could surprise markets with an expected policy measure; if not, bullion prices will continue to their lead from the direction of long term interest rates and USD.

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