Gold and Silver Report 11 May 2015

It was a mixed week for precious metals, which mixed U.S. data and lack of certainty of a rate hike leaving prices in a relatively narrow range this week.

Price and charts snapshot:

Source: Bloomberg

Source: NASDAQ

On Monday gold was supported by weak Chinese factory data and earlier U.S. dollar weakness, lifting prices by 1%, above the prior session’s six-week low, though caution over speculation of the timing of a U.S. interest rate hike kept prices tight.^[1] On Tuesday gold retained overnight gains, but stayed under the key USD$1,200 mark as investors awaited a U.S. nonfarm payrolls report later in the week.^[2] On Wednesday, Germany’s 10-year government bond yield hit a yearly high while the 10-year U.S. Treasury yield rose to a two-month high.^[3] Gold prices were put under pressure from the high benchmarks, causing prices to edge downwards despite a sharply weaker dollar and soft U.S. data. On Thursday gold extended its losses into a second day as the U.S. dollar firmed^[4] while on Friday gold dropped for a third session in a row as equities firmed and traders awaited the U.S. jobs data.^[5] However, March payrolls were revised to report the smallest number of new jobs since June 2012, boosting speculation that the Federal Reserve may hold off raising interest rates in the immediate future.^[6]

Doubts over the U.S. economy are in focus lately as recent data has been mixed. This week investors were cautious – waiting for Friday’s U.S. nonfram jobs report to provide a clearer picture. “If we have another weak set of data this week … I would expect gold prices to go higher,” ABN Amro analyst Georgette Boele said. “Of course, a stronger (U.S. payrolls) report would not be good for precious metals, so I think people are a bit cautious this week.”^[7] After the report, George Gero from RBC Capital Markets in New York noted “What our gangbuster jobs report said today is that short-term, it does not look like there will be an increase in interest rates,” adding that report prompted short-covering among investors who had piled on new shorts during the previous two sessions’ losses.^[8]

Timing of a U.S. rate hike also continues to weigh on gold. Markets initially expected a hike to take place in June, but the recent mixed data caused investors to push back expectations. Dennis Lockhart of Atlanta Fed bank said on Wednesday he still feels conditions would be in place for a midyear U.S. rate hike despite a weak start to 2015, and that markets betting on a September increase were in “reasonable alignment” with the central bank.^[9]