Precious metals changed direction and declined – along with other commodities – as the USD bounced back against the Euro and Japanese yen. Will the recent fall in gold and silver prices continue? Or will bullion prices change course again and rally? A lot will depend on how the upcoming events and report unfold. This week, the main event will be the non-farm payroll that may impact gold and silver. Other events and reports to consider include: U.S. core PCE, Yellen’s speech, China and U.S. manufacturing PMI, and EU flash CPI.
During the past short week, the U.S. dollar started to gain some steam and strengthen against the major currencies. Even though there weren’t too many reports or events last week, commodities in general and precious metals in particular seem to have declined in part due to the stronger dollar. The interviews given by FOMC members last week including by James Bullard, in which he pointed out that the Fed is still ready to move forward and raise rates at soon as April, helped drive back up the USD. And the latest GDP report, which was better than expected, also helped boost the USD: the GDP growth rate rose by 1.4% — higher than anticipated and the previous estimate.
Looking forward we have three main events to consider next week: the core PCE, Yellen’s speech and the NFP. The core PCE reached 1.7% back in January. So if it picks up again and coming close to 2%, this will make it more likely for the Fed to consider raising rates sooner rather than later. Yellen is expected to give a speech titled “Economic Outlook and Monetary Policy” at the Economic Club of New York luncheon. Yellen will try to not to shake the boat and maintain the market guessing when will the next rate hike will be. But if Yellen’s talk will be considered hawkish, this could bring back down gold and silver prices. Finally, the main event will be the NFP report that will be released on Friday. Last time, even though the NFP headline figure was higher than expected, gold and silver rallied – in part because wages declined.
Source: BLS and Bloomberg
This time, the market expects another strong report including a gain of 208K jobs and a gain of 0.3% in wages, month over month. If the report shows higher than expected results on both counts, this could help pressure up the USD, raise the odds of a rate hike and, as a result, bring down precious metals.
Despite the latest news from last week, the probability of a rate hike didn’t change much: Based on Fed-watch, the implied probability for a June hike slightly rose to 41.4%. The chances for a hike in September remained close to 60%. And for December, the odds slipped to 73%.
ETFs holdings: By the end of the previous week, gold holdings of the gold ETF SPDR Gold Trust (GLD) rose again for 12 straight week, last week by 0.58%, week on week, to 823.74 tons of gold – up by 28.24% year to date; silver holdings for the silver ETF iShares Silver Trust (SLV) also increased by 0.1% to 328.9 million ounces.
The recent fall in gold and silver may continue if the recent rally of the USD persists. And if the core PCE and NFP figures show higher than expected numbers, then the downward pressure on the U.S. dollar will further intensify. These results could also drive back up LT interest rates. As a result these developments could further pressure down gold and silver. But if core PCE and NFP figures – including wages and headline jobs – disappoint, this may reduce the odds of a rate hike anytime soon and bring back up precious metals.