Gold and Silver Outlook for March 2-6

Gold and silver showed a modest gain in the past week, despite the unclear trend in the movement of USD against leading currencies pairs. Yellen’s recent testimony was perceived mostly dovish and pushed back up bullion prices and dragged down US treasury yields. This week, the two main events/reports of the week are the non-farm payroll and ECB rate decision, albeit the ECB isn’t expected the come out with any big announcements this time. RBA is expected to cut down its cash rate by 25bp to a new low. Other events and reports include: Rate decisions by BOE and BOC, Yellen’s speech, US, GB, and China’s manufacturing PMI, EU flash CPI, US PCE, German factory orders, and US factory orders.  Here is a preview for March 2nd to 6th, 2015:  

The testimony of Yellen may have also contributed to the recent fall in long term Treasury bond yields during last week. This week Yellen is expected to give a speech about bank regulation and supervision at the Citizens Budget Commission’s Annual Awards Dinner.

Despite the dovish tone of Janet Yellen in her recent testimony, the implied probabilities, have only slightly declined in the past week to 36% chance of a rate hike in July and 55% of a rate hike in September.

This week, the non-farm payroll report will be released and could move again the prices of gold and silver. After all, the linear correlation between the changes in the price of gold and the deviation from market expectations to actual reported figure was mid-strong and significant at -0.4. Therefore, if the report comes higher than expected, currently the market consensus is at 241,000; then gold and silver could come down again.

This week there are also four rate decisions for ECB, BOE, BOC and RBA. Of all the four, the most reviewed will be the one by ECB, as Draghi could refer to the recent developments in Europe and further update on ECB’s QE program. Nonetheless, the market doesn’t expect any major changes in ECB’s policy in the upcoming meeting. Of these rate decisions, RBA is most likely to revise its policy and cut down its cash rate again by another 25bp – this will bring RBA’s rate to 2%, which is another new all time low. This turn of events could strengthen the USD, which may also curb down the recovery of gold and silver.

Another report worth noticing is the personal consumption expenditures report, which is another index the FOMC follows to assess the progress of US inflation. If the inflation further falls, this could indicate a pressure by low oil prices that could, down the line, bring the FOMC to revise down its inflation outlook for the coming years.

By the end of last week, gold holdings in the GLD ETF remained unchanged at 771.249; it’s still up by 8.3% for 2015, up to date.

Final note

The recent dovish remarks of Janet Yellen have provided enough back wind to bring back down U.S. long term treasury yields and rally gold and silver prices. But looking ahead, the upcoming economic data mainly the NFP report could bring back down bullion prices, especially if the report were to exceed market expectations. In any case, even if gold and silver were to fall back down again, they will still remain not far off their current levels of $1,200 and $16-$17, respectively.

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