The recovery of precious metals came to halt last week as both gold and silver prices tumble down by around 2% and 5%, respectively. This week the main report of the week is the NF payroll report, which could impact the direction of gold and silver. Also, ECB will announce of any changes to its rate and monetary policy. Besides these issues, this week, other events and reports include: U.S. manufacturing PMI, factory orders, trade balance, China’s manufacturing PMI, Australia’s GDP for Q3, MPC, RBA and BOC rate decisions, and Germany’s factory orders. So let’s breakdown the economic outlook for the week of December 1st to 5th:
The recent cool down in the precious metals market coincided with the drop of other commodities prices such as crude oil. U.S. dollar slightly weakened against leading currencies such as yen and Euro.
This week, however, the direction of precious metals may be impacted by the release of the NF payroll report.
The table above presents the relation between gold and silver to changes in NF payroll during the past couple of years.
As you can see, precious metals tend to have a negative relation to U.S. employment especially when the number of jobs added comes short of expectations. Last time, the NF payroll report was positive with a gain of 214K jobs but was lower than expected so that gold and silver had a positive reaction.
This week, the current estimates are for a gain of 225K. A lower growth rate could result in another bounce in precious metals prices.
This week, the manufacturing PMI report will be release and could provide additional information regarding the progress of the manufacturing sector. Keep in mind, however, this report seems to have a smaller impact on the bullion market than the NF payroll. In any case, the current expectations are for a fall in the PMI to 57.9 – in the previous month the number was at on 59. If the number falls below the current projections, this may adversely impact commodities prices including gold and silver.
Besides the U.S. manufacturing PMI, factory orders and trade balance reports will be released. These are additional reports that could impact the direction of the U.S. dollar.
In Europe, the ECB will announce of any changes to its policy. ECB President could provide some additional guidance about the ECB’s asset purchase program; if so, his words could bring further down the Euro against the U.S. dollar, which could be another pull back for precious metals.
In China, the manufacturing PMI reports by China and HSBC will come out. The progress of China’s economy is another factor to consider its impact on the demand for commodities including gold and silver.
Earlier this week, the Swiss referendum concluded with voters overwhelmingly declined a proposal to boost central bank gold reserves, which is likely to have provided another reason for a tumble in gold and silver prices at the beginning of the week.
During last week, gold holdings in the GLD ETF dropped again to 717.627 tons by the end of previous week –a 0.46% fall; it’s also 7.1% lower than its levels recorded at end of September.
Takeaway
The weakness in the bullion market is likely to continue especially if the U.S. economy keeps showing signs of recovery. Any short comings could result in a short term bounce back in gold and silver prices but the general direction is likely to remain downwards.
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