Gold and silver started off March with a bang: Their rally came even though the U.S. dollar didn’t do much against the Euro or the Yen, and the long term interest rates starts to rise again. Even the recent NFP report, which showed a higher than expected gain in jobs, didn’t hold back precious metals prices. And while the markets are likely to further digest this news at the start of the week, the focus will shift from the U.S. to Europe and China. This week’s main reports and events include: ECB’s rate decision, China’s trade balance, BOC’s rate decision, Japan’s GDP for Q4, and China’s CPI. Here is a breakdown for gold and silver for the week of March 7-11:
In China, the 5-year economic plan was released over the weekend and didn’t offer much good news: A growth rate of 6.5% per annum and run a fiscal deficit of 3% of GDP this year – back in 2015 this goal was 2.3%. This news might not help the physical demand of bullion but could raise concerns over China’s economy, which tends to help increase the demand for gold and silver as investments.
And on Friday, the NFP report was released: Jobs grew by 242K – higher than expected – but wages fell from 2.5% to 2.2% annual rate. Following this news, based on Fed-watch, the implied probability for a March rate fell to near 0%; for June the chances of a hike slightly picked up to 26%. It seems that the news over lower growth in wages was enough to convince markets that the Fed won’t raise rates anytime soon and also pulled up gold and silver.
Source: Bloomberg, BLS
Looking forward, the ECB rate decision will be the main event of the week: Currently, the markets expected Draghi to lower the deposit rate by 10 basis points to -0.4% and perhaps raise the QE program by another 10 billion euros per month. So if Draghi doesn’t beat expectations, the Euro could start to rise again.
ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) increased again for the ninth straight week, this time by 4%, week on week, to 793.12 tons of gold –up by 23.5% year to date; silver holdings for the silver ETF iShares Silver Trust (SLV) also rose by 3.5% to 322.6 million ounces.
Bottom line
The week ended with a jobs report that showed growth in the labor market but didn’t offer any good news about wages. And even though precious metals rallied on Friday, they could still change direction as the market continues to digest the news from the NFP. And the recent rise in long term interest rates start curbing down the rise of gold and silver. But the focus will shift towards China and Europe. The former has a couple of economic data to be released along with the reaction for its disappointing 5-year plan – news that could actually raise the anxiety level in the markets and behoove precious metals; in Europe, the Draghi show will take center stage. If he doesn’t deliver with more stimulus – more than currently expected from him – this could pull back up the Euro, which may also pressure up gold and silver.
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