Gold and Silver Report for June 5-9

Precious metals prices have continued to slow recovery especially following the latest NFP report, which showed a gain of only 138K jobs and another month of only 2.5% wage growth. This report, however, didn’t change the market expectations about the upcoming June rate hike – the chance is still close to 100% — but it may have changed the outlook for the rest of the year. And the drop in long term yields are helping to push back up bullion prices. This week the political story will take center stage including Comey’s testimony and UK’s elections. Two stories that could shake up markets. But that’s not all, there is also the ECB’s rate decision.

It’s interesting to point out that even though the Fed has raised rates twice in the past six months and is expected to raise rates again later this month, LT treasury yields, key factors in driving back up gold and silver prices, have declined, as indicated in the following chart.

gold and yield

Source: FRED

In fact, the 10-year yield is currently around the level recorded back in mid-November 2016; in other words, the Fed’s tightening policy had very limited impact on LT yields. This could be, in part, due to falling inflationary pressures and the recent NFP report, which showed a gain of only 2.5%.

And now the Fed, baring a very unexpected turn, is expected to raise rates again this month even though the data don’t really support a hike. But because the FOMC already directed the market towards a rate hike, it will be hard to change their course without causing a stir up in the market – something the Fed is trying to avoid. The Fed might become more dovish moving forward especially if the economic data on inflation and wage growth don’t improve.

If so, gold and silver could get another boost as was the case in recent weeks.

This week, the ECB will convene for a rate decision. The ECB isn’t expected to change its policy but will produce revised outlooks for the economic data. The markets will look for hints in Draghi’s statement about when and how the monetary stimulus will reverse course.

The UK elections will be held on June 8th. The Conservatives are expected to win but the Labour party is closing the gap in the polls, which could lead to another June surprise. If so, most of this potential surprise isn’t likely to be as severe as the Brexit reaction. Thus, it’s likely to have mostly an impact on the British pound. For gold and silver, as to other assets, the upcoming Comey testimony, which could be canceled due to Presidential privilege, may shake up the markets as the Comey memos did a few weeks back. I doubt we will have another short spike in volatility considering the reaction last time after the release of the Comey memo didn’t last long.

In total, the recovery of gold and silver may continue as LT yields are continuing to fall and the USD isn’t gaining strength.

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