The bullion market had, much like the rest of the financial market, a turbulent week: But unlike equities or other major commodities, both gold and silver continues to rise. The devaluation of the U.S. dollar helped push up precious metals prices. Even the U.S. NFP report, which was considered solid despite missing the headline figure, seems to have had little impact on gold and silver. Looking forward, this week the main events of the week include: U.S. JOLTS, Yellen’s testimony, German Q4 GDP, GB manufacturing production, U.S. retail sales, Governor Stevens speaks and U.S. consumer sentiment. Here is a breakdown for gold and silver for the week of February 8-12:
The latest NFP report showed a gain of 151K jobs, lower than expected, but the main issue was that the unemployment rate edged down to 4.9% and wages were still growing – last month they rose by 2.5%. This was enough to reassure the market that the labor market is still doing well and slowly recovering.
Source: BLS and Bloomberg
This news, however, didn’t seem to move much gold and silver, as presented herein. The correlation tends to be negative and robust between daily percent changes of gold/silver and the deviation of the headline figure from market estimates. This time it didn’t hold up due to the mitigation factors listed above.
But when it comes to the market’s outlook about the Fed’s rate decision, according to Fed-watch, the implied probability for a March rate raise declined again to only 8%; for a June hike the probability fell to 29%. By the end of 2016, the market still estimates the Fed’s cash rate will be, on average, 0.52% — which implies at best one rate hike this year.
This week is a bit lighter on news. In the U.S. the JOLTS report will complement the NFP report and provide another (even though it’s for December’s numbers) indication for the direction of the labor market. It’s worth noting that since the market is still concerned over a possible recession down the line, this sentiment will likely to keep feeding up the demand for precious metals. Retail sales and consumer sentiment will be published on Friday and will show the direction of U.S. consumer spending, which remained flat back in December, according to the last PCE report.
Finally, the Chair of the FOMC will head to the hill and testify twice before Congress and Senate. The testimony will include a statement about the direction of the U.S. economy and will be followed by Q&A. This testimony could move not only markets but also bullion if Yellen were to convey her understandings of where the economy is heading. Also, whether the Fed is ready to start backpedaling from its stance of raising rates several times this year.
ETFs holdings: By the end of last week, gold hoards of the gold ETF SPDR Gold Trust (GLD) sharply rose by 4.7%, week on week, to 698.46 tons of gold – it’s up by 8.7% since the beginning of the year; silver holdings for the silver ETF iShares Silver Trust (SLV) slipped yet again by 0.2% to 308.9 million ounces.
In conclusion…
The market will keep digesting the NFP along with the JOLTS at the beginning of the week but then will change its focus on Yellen’s testimony. If Yellen were to present a more dovish stance, this could further drive up gold and silver. Otherwise, this may holdback PM prices from keep rising. The direction of the USD will also play a role in the direction of PM. If the USD keeps devaluing and the chances of a hike continue to diminish, gold and silver are likely to keep moving upward.
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