The week started off with sharp falls for gold and silver, but the latest NFP report turn things around for precious metals as they ended the week on a high note. But will this rally continue or will be short lived? The NFP presented a gain of only 142K in jobs – well below market expectations. Moreover, there were downward revisions for the two previous months of 59K. This week, we have three banks convene for their monetary policy meetings and the release of the minutes of the last FOMC meeting. These are some of the main events to look out for this week’s precious metals agenda.
The labor report wasn’t too impressive when you examine the jobs figures, which were lower than expected; this also means for the second consecutive month the U.S. experienced a jobs gain of less than 200K jobs per month. The lower than expected figures along with the downward revisions of previous months led to a jump in the prices of gold and silver. Despite the recent rally of gold and silver – gold was still down for the week and silver is slightly up by 1% during the week.
Source: Bloomberg, BLS
But the report wasn’t all bad, after all it did show a drop in the U6 (the “real unemployment”) – it fell to 10%. And the rate of unemployment remained low at 5.1%.
The latest report also shuffled the deck again when it comes to where the market stands on the rate hike of the Fed: The implied probabilities for a rate hike in October dropped to 5% and to 30% in December. For gold and silver, the lower the chance of a hike this year could help push up, even if for a short time, bullion prices.
The financial markets will keep digesting this report and what it means. In this respect, the upcoming FOMC minutes could also shed some light on the Fed’s take, given the current economic climate. Sometimes, the Fed revises the minutes up to the last moment. If so, the report could have a stronger impact on the markets.
Besides the FOMC minutes, three central banks will convene this week to discuss their monetary policy: RBA, BOJ and BOE. The market doesn’t expect any major moves from either of these banks, but the RBA and BOJ could still surprise and turn a bit more bearish on their respective currencies – a move that could boost the U.S. dollar against them. The BOJ is pressured to expand its QE program and RBA to cut rates – both are forced, in part, because of the ongoing weakness in China. A stronger U.S. dollar could adversely impact gold and silver prices. But considering the market doesn’t expect a rate hike by the Fed, we could keep seeing selloffs of the USD, which will likely to pull up bullion prices.
Following the recent bump up in bullion prices, the demand for gold ETFs slightly rose: By the end of last week, gold holding of the gold ETF SPDR Gold Trust (GLD) increased to 689.2 tons of gold – 0.74% gain, week on week, while silver holdings for the silver ETF iShares Silver Trust (SLV) remained nearly unchanged at 318.4 million ounces.
Takeaway
The recent rally of precious metals may continue in the coming days especially if the Fed presents a dovish minutes and the economic data (e.g. non-manufacturing PMI) keep coming below expectations. Conversely, the central banks mainly RBA and BOJ could try to present dovish statement in order to pressure down their currencies, which could actually pressure down gold and silver prices. Nonetheless, as the market remains skeptical about the Fed’s determination to raise rates this year, it’s likely to keep gold and silver from resuming their descent over the short term.
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