Gold and Silver Outlook for March 30- April 3

Even though the oil market has experienced high volatility, this hasn’t translated to sharp movement in precious metals prices. The U.S. GDP report came slightly short and Yellen’s testimony didn’t offer any big headlines, which left the bullion market to maintain its course following the last FOMC meeting. This week the main reports include: U.S. NF payroll, EU flash CPI, GB, U.S. and China’s manufacturing PMI, U.S. PCE, factory orders, pending home sales, German retail sales and U.S. Consumer confidence.  Here is a preview for March 30th to April 3rd, 2015:  

The aftermath of the last FOMC meeting kept echoing in the bullion market as the prices of gold and silver continued to slowly rally. This dovish statement cut down the market’s expectations for a rate hike: The implied probabilities  have dropped to a 19% chance of a rate gain in July and 38% of a rate hike in September.

Also, the U.S. GDP for the fourth quarter slightly missed market estimates as the growth rate was 2.2% — the expectations were for a 2.4% gain.

Finally, the U.S. dollar changed course and depreciated against leading currency pairs including the Euro, Yen and Aussie dollar. These developments may have contributed to the modest recovery of gold and silver. This could all change this week, however, if the upcoming U.S. NF payroll beats yet again the market estimates.

In the past employment report, the number of jobs grew by 295K –above market projections; the U.S unemployment rate slipped again to 5.5%.

This report will be released on Friday, when most markets mainly in Europe are closed. This could result in higher volatility if the NF payroll report shows a major deviation from market expectations.  The current estimates are for a gain of 251K in jobs.

As you can see in the table below, when the NFP comes above market estimates, precious metals prices tend to come down.

U.S.Labor Reports gold price and silver prices March 8 2015Source: BLS and Bloomberg

Thus, if we were to see another gain of well above 251K, this could lead to another fall in gold and silver prices – as was the case in the past couple of times.

Other notable U.S. reports that will be released this week include: consumer sentiment, manufacturing PMI, core PCE, factory orders, and pending home sales. For the PCE, this is another indication for the progress of the U.S. inflation and is monitored by the FOMC.

By the end of the previous week, gold holdings in the GLD ETF fell again by 0.96% to 737.2; even though the ETF’s gold holding have dropped in recent weeks, they are still up by 3.5% for the year, up to date.

So what’s the bottom line?

The modest recovery of gold and silver – if one could call it that – may not last long and is mostly driven by falling U.S. dollar, higher tensions in the Middle East – higher risk tends to help bullion – and falling interest rates. These conditions could keep gold and silver up and even see additional gains, but this week these gains could change course if the NFP comes up higher than anticipated. So the high volatility could reappear at the end of the week.

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