The high volatility in the financial markets has also kept moving gold and silver prices – albeit mostly downward. Although they did bounce on Friday, precious metals were still down for week: gold and silver fell by 2% and 5%, respectively, on a weekly scale. The recent U.S. GDP for Q2 was better than expected and provided some backwind for the U.S. dollar. The latest recovery of the U.S. dollar also prompted selloffs of gold and silver during most the week. This week, the main event will be the release of the non-farm payroll report that could move again gold and silver. In Europe the ECB will convene for another policy meeting. And in China, the manufacturing PMI will be released. Will the recent descent of gold and silver continue this week? Let’s examine the latest developments in the financial markets, what’s up ahead and their possible impact on gold and silver.
Last week, the U.S. GDP for Q2 showed a growth rate of 3.7% — higher than expected. And although the GDP report doesn’t tend to have a direct correlation with gold and silver prices, it’s still strongly linked with the movement of the USD, which tends to move bullion prices.
Source: Bloomberg, BLS
The main event of the week will still be the release of the non-farm payroll report. In the past report, the NFP was in line with market estimates with a gain of 215K jobs, albeit came a bit short. Nonetheless, the market wasn’t too impressed, which led to selloff of the USD and rally of bullion prices, as presented in the chart below.
Source: Bloomberg, BLS
This month, the NFP is expected to reach 220K jobs. Any figure much higher than this, say north of 250K could result in another bullish move for the U.S. dollar and bring down gold and silver. But another gain of lower than 220K could pull back up, even for a short term, gold and silver.
Other U.S. reports to consider include manufacturing PMI, trade balance, and factory orders. And on Friday we also have a speech by FOMC Member Lacker titled “The Case against Further Delay”. This could provide another perspective about the Fed’s thinking process and may actually raise the odds of a rate hike in the coming months.
Despite the recent strong than expected U.S. GDP for Q2, the implied probabilities of rate hike in September remained unchanged at 28%; in October the implied probabilities reached 39%; and for December the odds slipped to 56%.
Besides the upcoming U.S. reports, the Caixin final manufacturing PMI for August will be released this week. Even though the flash report tends to have more impact, apparently, on the financial markets, the final estimate could still resurface China’s economic concerns – especially if the PMI dips even further below the current markets estimates of 47.2. In this case, we could see additional selloffs of gold and silver.
Finally we also have the ECB rate decision on Thursday. ECB President Draghi isn’t expected to change the monetary policy but could provide some input about the progress of ECB’s QE program, the latest developments in Greece and the possible impact of China’s economic challenges on ECB’s policy.
By the end of last week, the gold holding of the GLD ETF increased again by 0.70% to 682.6 tons of gold. It’s still down for the year by 4.2%. The silver holdings of the leading silver ETF SLV slightly rose by 0.3% to 325.9 million ounces.
Bottom line
The recent U.S. GDP for Q2 provided some relief for the U.S. stock markets, pushed back up the USD and, in the process and indirectly, brought down gold and silver. China’s woes are still present and could work in both direction for gold but aren’t likely to behoove silver – especially the physical demand for silver. So the volatility isn’t likely to go away anytime soon. Additional positive reports about the U.S. economy could further boost the USD and drag down gold and silver. I still suspect the upcoming NFP report won’t be too impressive. This report along with Lacker’s speech could pull bullion prices in different directions on Friday. My guess, we could see another repeat of last week: A decline in precious metals prices following by a rally on Friday. For further reading see: