Gold and Silver Outlook for November 9-13

Gold and silver prices took another hit after the latest NFP report showed a much better than expected growth in jobs of 271K – the market expected a gain of only 179K. This news reignited the belief that the Federal Reserve will raise rates this year. And higher rates won’t vote well for the trajectory of precious metals prices. This week, the main reports to come out include: U.S. JOLTS, German GDP for Q3, U.S. PPI, China’s CPI, U.S. consumer sentiment, China’s industrial production, and U.S. retail sales. Let’s see what’s up ahead for gold and silver and how the upcoming reports and events for the week could move precious metals.

The NFP, as you can see in the table below, tended to have a strong correlation with the movement of gold and silver prices over the past year.

U.S.Labor Reports gold price and silver prices NOV 8 2015

Source: Bloomberg, BLS

These correlations are for the deviation or surprise between the market estimates and actual headline figure. Moreover, based on Bayesian analysis, the chances of gold and silver to fall, given the headline figure beats expectations were 74% and 68%, respectively. So it’s a common occurrence for precious metals prices to decline given a better than expected NFP report. But another strong point to consider is the growth in wages, which reached an annual pace of 2.5% — the highest growth rate since 2009. This could be a start of a new trend (or just a one-off figure) for the progress of wages. This figure could also be the main number the FOMC has waited for. And now it could make its members’ job a bit easier to consider raising rates in December.

Following this news, the implied probabilities for a December hike spiked; for now, the odds are at 70%. And for March 2016, the chances are 85%.

So the NFP report results will be echoing in the markets at the beginning of the week and probably further push up USD and down PM. But as the week progress we have a few more reports that could tilt the scales and move markets:

In the U.S. we have the JOLTS, retail sales, consumer sentiment and PPI. The PPI will mostly serve as a preview for the CPI report that will come out later this month. The JOLTS will pertain to September so it won’t likely to show solid numbers. But it’s still another report related to the current state of the labor market and is followed by the FOMC. If it shows a higher than expected growth in jobs opening this could push further down PM and up USD.

In China, the CPI and industrial production reports will be released. They should provide an indicator for the progress of China’s economy – one of the leading countries in importing gold and silver. Any indications of additional slowdowns could lead to additional selloffs of the bullion.

By the end of last week, gold holding of the gold ETF SPDR Gold Trust (GLD) dropped by 3.35% to 669.09 tons of gold, week on week. And silver holdings for the silver ETF iShares Silver Trust (SLV) also declined by 0.3% to 313.68 million ounces.

Final point

The NFP raised the chances of a rate hike in December, which is likely to keep down gold and silver prices. Unless the upcoming U.S. reports show much lower than expected results, precious metals prices are likely to keep slowly sliding down this week.

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