After a slow movement of gold and silver prices throughout most of the month, their prices took a turn and fell last week on account of the strengthening of the US dollar against the Euro and Yen. The Greeks, much like the Americans next week, may “celebrate” their own independence from the Euro. Albeit I doubt many Greeks will consider it a celebration. So the Greek debt crisis will take again center stage and move the Euro, which could also have a ripple effect on other markets including precious metals. Besides the developments in Europe over the Greek debt crisis, in the U.S. the non-farm payroll report will also lead the news as it will come out on Thursday. Other reports that will be published in the U.S. include: Manufacturing PMI, consumer confidence, factory orders, and pending home sales. In Europe other news include: GB current account, ECB’s minutes of last meeting, EU and German retail sales, and EU flash CPI. In China the final estimate of the manufacturing PMI by HSBC will be released. Here is a preview for June 29- July 3, 2015:
The next Greek payment to the IMF is due by June 30th and for now the Greeks don’t have the funds needed to make this payment. The surprise referendum on the bailout plan set for July 5th wasn’t accepted well by EU officials, even though, for now, it seems the Greeks aren’t incline to leave the EU, based on latest polls. So the possibility of a default has increased along with a possible Grexit. This also means that if I once compared the current situation between the Greeks and the Germans as a Mexican standoff, the current course the Germans, along with other debt holders, seems to suggest they aren’t so fearful of a possible Greek default and then exit.
Besides the Greek drama, the other major event of the week for precious metals is the publication of the non-farm payroll report, which will released this time on Thursday. Currently, the market estimates the report will show a gain of 231,000 – lower than last month. If the report were to show a higher than expected gain in number of jobs, this could bring further down gold and silver prices. A stronger gain in the number of jobs could persuade a bit more the market of a possible rate hike in September, even though the Greek drama could also play a role in this decision.
Source: Bloomberg, BLS
As you can see above, last time the higher than expected gain in number of jobs also coincided with a decline in gold and silver prices.
As of the end of the previous week, the implied probabilities in the bonds market slightly rose: The probability of a rate hike in September increased to 16%; the odds of rate hike in December also rallied to 57%. If the U.S. economy shows another gain in the NFP report of over say 250K, this could bring further up the implied probabilities of a rate hike in the coming months. And a higher rate will likely drive down gold and silver prices.
By the end of last week, gold holdings in the GLD ETF changed course and rose by 1.30% to 711.4; The ETF’s gold holding are down by only 0.1% for the year, year-to-date.
What’s next?
As usual the whole issue of the progress of the U.S. economy and the monetary policy of the FOMC will lead the way for gold and silver. A strong NFP report could have a short term adverse impact on gold and silver prices seeing that they have a negative correlation. In the forex market the Greek drama will take the lead for the week and a higher chance of a Greek exit of the Euro could have a strong impact on the Euro/USD and consequently on bullion prices.
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