The tumble in gold and silver came following the announcement of the FOMC to end QE3 and hawkish statement. The U.S. GDP for the third quarter also provided some backwind for the U.S. dollar and dragged down bullion prices. Finally, BOJ’s announcement to expand its QE program also caught the market by surprise and pulled up the U.S. dollar. This week, the focus will be on the U.S. NF payroll report and in Europe it will mainly be around the ECB’s rate decision. China’s manufacturing PMI report will be released. So let’s examine the economic outlook for the week of November 3rd to 7th:
The recent FOMC meeting ended, with little surprises, as QE3 ended by eliminating the remaining $15 billion asset purchases. The reaction in the bullion market, the next day, was a sharp fall in prices of gold and silver.
Besides the release of the FOMC meeting, the U.S. GDP for the third quarter was also published. The estimate showed a 3.5% gain during the past quarter – higher than expected. This news may have contributed to the recent recovery of the U.S. dollar. Keep in mind, however, most of the gain came from higher government spending, which drove higher the growth rate.
Conversely, the core personal consumption expenditures (excluding food and energy) index, which measures the U.S. core inflation, edged up again by 0.1%. On an annual rate, the core PCE rose by only 1.4% – still far the 2% target of the FOMC. The low inflation could keep the FOMC doves pushing towards keeping the cash rate low for a longer time.
This week, the U.S. non-farm payroll report will be released on Friday. In the last employment report, employment grew by 248K and the unemployment rate inched down to 5.9%. The current projections are for a gain of 229,000 in jobs. If the NF payroll shows a higher gain than anticipated, this could bring further down gold and silver.
Besides, the U.S. employment report, the manufacturing PMI monthly update will be released. This is another report that could impact the direction of the U.S. dollar.
In Europe, ECB rate decision will take place this week. The current expectations are for no change in the ECB interest rates. Conversely, ECB President Draghi may provide some additional information about the bank’s ABS program.
In China, the final estimate of HSBC’s manufacturing PMI report for October will come out. If the report shows a modest gain, this update may bring up commodities prices. The current estimate is for a slight rise to 50.4.
In the past week, the demand for gold as an investment fell again — gold hoards in the GLD ETF, the world’s largest gold ETF declined to 741.2 tons by the end of last week –0.56% below the previous week and it’s also down by 7.5% since the beginning of the year.
The U.S. dollar bounced back mainly against the Japanese yen – 3.9% during the past week. This came after BOJ announced a rise in its asset purchase program. If the U.S. dollar keeps recovering, it’s likely to bring back down gold and silver.
Finally, the U.S stock market kept recovering as the S&P500 increased by 2.7% during last week. If the U.S equities keep pulling up, this may also coincide with bullion prices’ downfall.
My guess: The sharp downward trend in gold and silver may have been a strong reaction, which could result in a correction. So in total unless the NF payroll report shows modest gain or ECB President comes up with a surprise announcement, gold and silver are likely to keep falling on a weekly scale.
For further reading: