Following the stronger than expected U.S. GDP report, the non-farm payroll came short of market expectations with 173,000 jobs – 47,000 jobs lower than anticipated. This news reduced but didn’t eliminate the chances of the Federal Reserve raising rates in September. Despite this news, during last week, the U.S. dollar slightly rallied against the Euro but devalued against the Japanese yen. This mixed trend for the U.S. dollar led to a modest drop in gold and silver in the past week. Nonetheless, the latest ECB policy meeting concluded with President Draghi beating down the Euro as he hinted of possible longer QE program. Will the weakness in the bullion market continue in the coming days? This week, the main reports that will be released include: PPI, JOLTS, and consumer sentiment. Bank of Canada and BOE will hold monetary policy meetings. China will release its CPI and trade balance monthly updates. Let’s breakdown the latest developments and what’s up ahead for precious metals.
The recent NFP report wasn’t too impressive and reduced market expectations regarding the Fed’s decision vis-à-vis liftoff — it lowered the implied probabilities for a September rate hike to 19%, for October the odds slipped to 36% and for December the chances fell to 53%. But the NFP was also not too bad as to take off the table a possible hike in the coming weeks. I remain skeptical about a September hike and think the Fed may push this decision to a later date.
Source: Bloomberg, BLS
Following the release of this report, the market is still likely to be impacted by it in the coming days as people try to figure out whether this report raises the chances of a rate hike and what’s does it mean regarding the progress of the U.S. economy.
This week, the JOLTS report and will be another indicator for the progress of the U.S. labor market. The FOMC follows this report and it could also impact their decision making. The upcoming report is expected to show 5.3 million number of job openings – a bit higher than in the previous months. It’s also important to examine the number of quits.
Other reports to look out for include: U.S. PPI, consumer sentiment and China’s CPI and trade balance. The progress of China is also an important factor for the bullion market – if China continues to show slower growth, it could also further pressure down gold and silver prices.
By the end of the previous week, gold holding of the GLD ETF remained nearly unchanged at 682.32 tons of gold. It’s still down for the year by 4.2%. The silver holdings of the leading silver ETF SLV fell by 0.8% to 323.39 million ounces.
Final note
The market remains confused. For now, gold and silver are down, and could keep coming down if the upcoming JOLTS report shows stronger than expected results. And the NFP could still echo in the market and push further down bullion prices as people may realize this report wasn’t too bad as the headline figure suggests. China is also another issue that could keep pressuring down bullion prices – if the trade balance report shows a lower than anticipated gain this could further bring down gold and silver. For now, I still think, unless we see much lower than expected results for the upcoming U.S. reports, gold and silver are still heading slowly down.
For further reading see: