Gold and Silver Outlook for July 18-22

Now that the U.S. economy is showing signs of recovery including the better than expected NFP report and retail sales, the market is slowly adjusting again to a possible rate hike this year. And higher rates also mean a slower pace of rally for both gold and silver – as was the case last week. The BOE also didn’t move on providing more stimulus by not cutting rates, which strengthened the British pound. This week, all eyes will move towards the ECB as Draghi will take center stage and offer some insight behind what’s next for its monetary policy. There aren’t many economic reports coming from the U.S. – mostly Philly Fed index, housing starts and existing home sales – and they aren’t likely to move much the markets. Given what’s up ahead for the week of July 18-22 let’s see what’s next for gold and silver?

The NFP’s strong report, which showed a higher than expected growth in jobs and stable rise in wages (albeit lower gain in wages than expected) and the recent better than expected retail sales report have started to influence investors to reconsider their belief on what the Fed will do this year. If only a week earlier the market still put a positive chance for a rate cut, by the end of last week the tables have turned:   Based on Fed-watch, by the end of last week the implied probability of a rate hike in July rose to 2.4%; for September the odds of hike picked up to 14%; and for December the odds of a hike have also moved up to 44%. So now the odds of a rate cut have dissipated. Perhaps the calls FOMC members voiced for not ruling out a rate hike this year have also helped move the market to reconsider the odds of the Fed raising its cash rate this year.

And considering interest rates could actually start climbing again this year, the recovery of gold and silver slowed down last week with gold falling by 2.3% and silver rising by 0.3%. Considering there aren’t major economic reports coming out from the U.S. this week, the market will keep digesting the recent economic data from recent weeks and the release of the next earnings results that will move markets and impact the direction of not only the U.S. dollar but also gold and silver; if the recent risk-on mode persist we could see further drop in bullion prices.

And then there is Japan; with the elections over people currently expect more stimulus from Japan that has helped bring down the Yen against the U.S. dollar. The stronger dollar against the Yen also contributed to the weakness of commodities in the past week.

This week, however, the focus will remain in Europe with the ECB rate decision. The BOE didn’t act last week and the ECB is also not expected to act. But Draghi will keep the show alive and could move markets if he hints of additional stimulus to follow in the coming months. And if the Euro were to further decline against the U.S. dollar this could also hold back precious metals prices.

ETFs holdings: By the end of the previous week, gold holdings of the gold ETF SPDR Gold Trust (GLD) decreased for the first time in seven weeks by 1.9%, week on week, to 962.85 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) increased again by 2.1% to 348.58 million ounces.

Bottom line

Gold and silver prices aren’t likely to move much this week considering there aren’t major economic data coming out of the U.S. and the market will focus on the FOMC’s upcoming meeting later this month. But for now the recent economic data from the U.S. were positive and unless the earnings results that are released this week disappoint, the market sentiment will keep moving towards risk-on mode, which doesn’t help gold and silver. Finally, the ECB policy meeting could also play a role in moving the markets: If Draghi hints of new stimulus in the future given the Brexit issue, the market could react, which again doesn’t vote well for bullion prices.

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