Despite the drop in precious metals prices by the end of the week, gold remained nearly flat and silver was up by 3% on a weekly scale. The recent FOMC meeting seems to have brought down gold and silver, after they started off the week on a strong note. The USD also moved in different directions among leading currencies: The USD fell against the Euro but bounced back against the yen. LT treasury yields picked up again as the markets estimate there is a higher chances of a rate hike in the coming months. What is next for gold and silver? The main event of the week in the U.S. is the upcoming NF payroll report. Other reports and events to consider include: RBA’s rate decision, UK elections, Yellen’s speech, U.S. trade balance, EU retail sales, U.S. factory orders, German manufacturing PMI, U.S. non-manufacturing PMI, China, manufacturing PMI. Here is an outlook for May 4-8, 2015:
The FOMC concluded its meeting with little more to say – it was the shortest statement in the past few years. This time, the FOMC removed forward guidance from the statement, as expected, and kept a cautionary optimistic tone. Albeit the modest growth in GDP in the first quarter and lower than expected NF payroll, the FOMC left the door open for a rate hike in the coming months.
Source of data: Bloomberg and FOMC’s website
Following this news about the FOMC statement, the market estimates, as derived from the implied probabilities in the bonds market, put the odds of a rate hike in September at 30% and 65% in December – this is a bit higher than before the FOMC meeting ended.
The upcoming NF payroll report could stir up these odds again, especially if the report shows a higher than expected growth in number of jobs. Last time, the number of jobs added was only 126K – lower than market estimates. In the upcoming report, however, the market projects a 231K gain in jobs. If the report does show a high level of job gain and even an upward revision of the past couple of months, these factors could bring further down gold and silver prices by the end of the week.
Other notable events and reports include: Yellen’s speech in a panel discussion about finance, governance, and society at the Institute for Economic Thinking conference on Finance and Society, in Washington DC; UK elections – while the elections won’t have a direct link to precious metals, the results could still stir up the forex markets; RBA rate decision – currently it’s estimated that the RBA will slash again its rate by 0.25 pp to bring it to 2%; this could devalue the Aussie dollar and have a modest adverse impact on gold and silver.
By the end of the previous week, gold holdings in the GLD ETF slipped to 741.75 – a 0.08% fall compared to last week; The ETF’s gold holding are up by 4.13% for the year, up to date.
The roller-coaster of gold and silver prices in the past week could continue in the coming weeks. The progress of U.S. dollar and long term treasury yields will also impact the direction of precious metals. If yields keep rising, this could play against gold and silver. The USD rallied again the yen but fell against other currencies including Euro and Aussie dollar; if the USD keeps devaluating against leading currencies this could actually, down the line, play in favor for gold and silver. For now, it seems that the NFP report will come out strong and show a higher gain last month. In such an event, gold and silver, on a weekly scale, could keep coming down.
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