The bullion market didn’t perform well again last week: Silver lost 1.7% off its value, while the price of gold inched down by 0.1%. As a result, the gold to silver ratio rose again by 1.6% to around the 70 mark – its highest level in years. This high ratio means silver’s relative price is very low compared to gold. This week the main events revolve around the U.S economic reports and ECB’s rate decision. The main reports from the U.S include non-farm payroll, manufacturing PMI and factory orders. The ECB rate decision and press conference could bring further down the Euro/USD, which could also indirectly adversely impact precious metals. Besides these news items, China’s manufacturing PMI could also impact, for a short time, the market if the report surprises the markets. So let’s review the economic outlook for the week of September 29th to October 3rd.
The upcoming NF payroll could play mostly in one direction – bringing down precious metals. In the past employment report, 142K jobs were added in August – well below market expectations. Even though the report tends to have a negative correlation with precious metals prices, the last unimpressive results didn’t have much of a positive impact on gold and silver. Conversely, a higher than expected result in the past months seems to have had a stronger negative impact on bullion. This may suggest that if the upcoming report for September shows a higher gain above the current estimates, which are set at 216K jobs gain, precious metals could see another fall in prices. If the number of jobs added comes short, this result may have a very modest positive impact on gold and silver.
Until this report comes down, several additional economic reports will be released in the U.S including factory orders and manufacturing PMI. These reports could also provide additional input regarding the progress of the U.S economy. As with NF payroll, if these reports turn out positive and exceed market expectations – currently the estimates are for the PMI to inch down to 58.6 and factory orders to fall by 9.2% — they could also slightly pull back gold and silver.
The upcoming ECB rate decision could play a secondary role in the direction of gold and silver. Following last month’s rate cut surprise, Mario Draghi may provide additional information regarding ECB’s future plans to implement its ABC program. It’s unlikely to see another rate reduction as the bank stated the rate reached its lower bound. But Draghi’s words could impact the Euro, which could also impact precious metals.
In the past week, the demand for gold as an investment contracted — gold hoards in the GLD ETF, the world’s biggest gold ETF, slipped again last week. The current gold holdings are at 772.2 tons by the end of last week – nearly 0.5% below the previous week and down by 3.5% since the beginning of the month.
The U.S equities also weakened last week as the S&P500 index dropped by 13%. If the stock markets change direction and resume their rally, this could steer more investors into equities and away from precious metals.
My guess: Precious metals could see a modest gain during the week, mainly if some U.S reports show lower than expected gains. But on a weekly scale we could see another contraction in precious metals prices.
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