Gold and Silver Outlook for January 12 -16

Gold and silver kicked off the year on a positive note as both precious metals rallied during last week. The release of the minutes of the FOMC meeting from December didn’t seem to have a strong adverse impact on bullion prices. The minutes reveled that some FOMC members consider a slower pace of rate hike following the first rate increase. Also, the NF payroll report came out last week – while it was still positive with 252K jobs added and unemployment falling again to 5.6%, the growth in jobs wasn’t far off market expectations. Thus, gold and silver didn’t so much on Friday. This week the main reports are the JOLTS, retail sales and CPI. Besides these reports, this week, other reports include: U.S. PPI, EU industrial production, GB CPI, Philly Fed index, U.S. consumer sentiment, China’s news loans, European Court of Justice Ruling and U.S. industrial production. Here is an economic preview for January 12th to 16th, 2015:  

Last week’s NF payroll report showed another strong monthly gain in jobs, but it also presented an ongoing little growth in wages – only 1.7% gain, year over year. The rate of unemployment slipped again to 5.6%, which is the lowest level in recent years.

But the market’s reaction wasn’t too positive, as the U.S. dollar depreciated against the Yen; precious metals rallied.

The table below shows the reaction of gold and silver prices to previous NF payroll reports and the linear correlation between bullion prices and the changes in number of jobs. Nonetheless, the correlations are stronger when examining the gap between NF payroll gain and market expectations and shifts in bullion prices.

U.S.Labor Reports gold price and silver prices Jan 10 2015

Looking forward, the JOTLS report will be another update that will provide another indication about the progress in the labor market. This report is also closely followed by FOMC members, albeit it tends to have a lesser effect on precious metals prices. Last month, the number of jobs opening rose to 4.83 million for November; current market predictions are that the number grew again to 4.91 million in December. A positive report in the labor market could bring down gold and silver.

The U.S. CPI is another important report that measures the U.S. inflation. If the U.S. inflation continues to come down it could suggest the demand for investments such as gold and silver will diminish.

Other reports worth looking out: retail sales, jobless claims, PPI, Philly Fed index, consumer sentiment, and industrial production. These reports could play a secondary role in moving gold and silver via their relation to the U.S. dollar. After all, the correlation between the U.S./Yen and gold is still relatively strong and negative at -0.41.

By the end of the previous week, gold holdings in the GLD ETF fell again to 707.821 tons– a 0.17% drop; it’s also down by 0.63% for the year.

Takeaway

The recovery of gold and silver could continue if the U.S. dollar keeps coming down against leading currencies including yen and Aussie dollar. The U.S. economy shows signs of progress, but it doesn’t rise by a much faster pace than market estimates. This is also likely to play in favor of precious metals. Finally, the potential fall in U.S. CPI doesn’t play in favor of gold and silver – if the CPI does fall by a much larger scale than market estimates, this could have an adverse impact on gold and silver.

My guess, gold and silver will keep slowly recovering in the short term.

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