The U.S. dollar remains weak and keeps fueling the rise of gold and silver prices. Last week, the main economic reports from the U.S. were in general not encouraging: The core CPI grew to an annual rate of 1.9% — higher than expected and very close to the Fed’s target inflation. But retail sales were disappointing with rose by 0.1% in September and core retail sales fell by 0.3% — below expectations on both counts. Consumer sentiment actually rose to 92.1, but the JOLTS report was mostly disappointing with a fall in jobs opening to 5.37 million in August; the quits rate remained flat at 1.9%. These reports may have contributed to the selloff of the U.S. dollar and reduced the chances of the Fed raising rates anytime soon – a shift that helps boost precious metals prices. This week, the main event will come from Europe: The ECB rate decision and press conference. Other events and reports include: China’s GDP, U.S. housing starts, EU manufacturing PMI, U.S. and existing home sales. So let’s examine what’s up ahead that could move gold and silver prices.
The U.S. reports weren’t, for the most part, too optimistic mainly the JOLTS and retail sale reports. This week, the main U.S. reports pertain to the housing market including housing starts and existing home sales. These reports could also have a modest impact on the U.S. dollar, especially if they come short of market expectations. But the main factor that is likely to move markets will be the ECB’s rate decision and press conference. At the center is whether the ECB plans to update on its QE program. Will ECB President Draghi hint or state flat out that the QE program will be expanded from its current pace or extended to a later date or both. In any case, a dovish press conference and monetary policy meeting are likely to pull back down the Euro, which could also pressure back up the USD. In such an event, gold and silver could suffer.
In China the GDP for Q3 will be released. The current outlook is for a growth rate of 6.8%. And although the data coming from China is taken with a grain of salt, it’s still likely to move markets. So if the report comes short of the current projections, this may impact precious metals prices. On the one hand, a weaker China could suggest lower demand for PM in this country – among the leading importers of PM. On the other, a slower growth could impact the Fed’s rate hike to push it even further into the future and also raise market volatility – two things that are likely to positively impact bullion prices. My guess the latter is likely to exceed the former for PM.
The implied probabilities for a Fed hike in October dropped a bit lower to 5%; for a December hike the odds also declined to 30%. And for March 2016, the chances are 52%. If these chances continue to fall, this could further boost gold and silver.
Now that the gold market is still starting to recover, 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 693.7 tons of gold – 1% gain, week on week; silver holdings for the silver ETF iShares Silver Trust (SLV) remained unchanged at 315.1 million ounces. The chart below shows the development in the gold holdings of GLD. As you can see, the holding are still lower than where they were back in June, but the gold holdings have picked up in recent weeks.
Source: GLD’s website
Bottom line
The rally of gold and silver could come to a halt, especially if the U.S. dollar changes course and climb back up. An ECB decision to augment its QE could do the trick by the end of the week. But if China’s GDP comes short of market expectations and the ECB doesn’t boost its QE program, we could see gold and silver continue to slowly climb back up.
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