Gold and Silver Outlook for November 2-6

The FOMC didn’t raise rates this time, but heavily hinted of a possible liftoff in the December meeting. This news was enough to prompt selloffs of gold and silver. Even the GDP report, which showed a gain of only 1.5%, didn’t seem to have much of an impact on bullion prices. Despite these recent developments, the market is still unconvinced the Fed will raise rates this year. And if the upcoming non-farm report shows another disappointing figure, it could lower even further the odds of a hike in December – a shift that could behoove, even if for a short term, precious metals. But the NFP isn’ the only event to consider, we also have Yellen testimony, a couple of rate decisions – by the BOE and RBA – and several economic reports including manufacturing PMI from U.S. and China, U.S. factory orders and non-manufacturing PMI that could also move markets including gold and silver. Let’s examine the main events and reports of the week with respect to their possible relation to precious metals.

First, let’s review the reaction of gold and silver following the news from the FOMC. As you can see below, this time, gold and silver tumbled down on the day after the report was released.

Source: Bloomberg, FOMC 

As I pointed out, it could well be that if the next couple of NFP reports show reasonable growth in jobs – say around 150K jobs per month or higher – and the core CPI doesn’t fall below 1.8%, it will be hard for the Fed to back out from raising rates. But I’m still not certain the Fed will move forward and raise rates. And I’m not the only one. Even though the implied probabilities for a December hike rose; for now, they aren’t much higher than where they were before the FOMC meeting – the odds are currently at 47%. And for March 2016, the chances are 69%.  Yellen testifies at the U.S. House of Representatives, in which she will present the Fed’s Supervision and Regulation could move markets and may offer some insight behind the recent policy meeting. If Yellen’s testimony will be construed as hawkish – it may further prompt additional selloffs of gold and silver.

But the main event of the week will be the NFP report:

Source: Bloomberg, BLS

As presented above, the report tends to move the price of gold and silver. The linear correlation between the surprise and the percent change of gold and silver are -0.48 and -0.45, respectively. The inverse relation suggests that if the NFP headline figure comes short of market expectations – currently the market projects a gain of 179K – precious metals prices are likely to bounce back. But keep in mind that the headline figure, while important, isn’t the only number the market looks. Other important figures include: revisions for past months, growth rate in wages, rate of unemployment and participation rate – just to name a few. In general, if the report disappoints again, it could reduce the odds of a rate hike and pull back up gold and silver prices.

Other main events include: China’s manufacturing PMI – if it shows another drop in the index it could also drag down gold and silver; the BOE and RBA’s upcoming rate decisions – currently the market doesn’t anticipate any change in policy for either of these central banks.  U.S. manufacturing and non- manufacturing PMI reports and factory orders. If these reports also show lower than expected numbers, they could also prompt selloffs of USD, which could pull back up PM.

By the end of the previous week, gold holding of the gold ETF SPDR Gold Trust (GLD) slightly fell to 692.26 tons of gold – 0.47% gain, week on week. And silver holdings for the silver ETF iShares Silver Trust (SLV) also slipped by 0.3% to 314.5 million ounces.

In conclusion…

The recent fall of gold and silver, following the FOMC meeting could continue at the beginning of the week especially if Yellen’s tone in her testimony remains hawkish. But the upcoming U.S. economic reports – mainly the NFP – are likely to influence people’s perspective about the progress of the U.S. economy and what does it mean about the Fed’s rate decision. For now, I think that if the NFP shows a growth in jobs of below 150K, it could be enough to pull back up gold and silver at the end of the week.

For further reading see:

• Financial Market Preview for November 2-6
• When Fed Doves Cry — MM #74
• U.S. GDP – Only a 1.5% Gain in Q3
• Will The Fed Do the Old Switcheroo?
• ECB’s QE Reloaded – Is It Enough?