Gold and Silver Report 4 May 2015

Gold began the week with a steady climb thanks to weak economic data and softer dollar in the U.S., causing uncertainty over Federal Reserve rate hike timing. However, gold and silver plummeted after the Fed’s mid-week meeting indicated it was not worried about recent economic slowdown. A subsequent strong jobs report further impacted the metals, leading to gold to drop to a six-week low by Friday.

Price and charts snapshot:

Source: Bloomberg

Source: Nasdaq

On Monday gold rose to its highest in a week, thanks to short-covering ahead of the Fed’s policy meet that would kick off on Tuesday. Bullion was likely also supported by weakness in the dollar, which had fallen to a three-week low.^[1] On Tuesday, the metal clung to overnight gains as expectations rose that the Federal Reserve will not indicate a June rate hike at its policy meeting.^[2] On Wednesday, the yellow metal initially retained its two-day gains, reaching near its highest in three weeks as more soft U.S. economic data arrived and further lowered expectations for a U.S. June rate hike.^[3] However, after the Fed’s meeting it signaled it would not rule out a June rate hike; causing gold to drop.^[4] On Thursday gold continued its downward movement, falling 2% after better-than-forecast U.S. jobs data showed that unemployment claims declined to the lowest reading since April 2000. Spot gold was dropping as much as 2.3% while silver was falling 3.1%. On Friday gold hit a six-week low as the U.S. dollar strengthened boosted by the previous day’s strong U.S. economic data and investor sentiment towards longer-term expectations for a U.S. rate rise.^[5]

Gold was boosted last week after a string of data showed slowing momentum in the U.S. economy. The most recent was declining consumer confidence, which sparked expectations for a delay in an interest rate hike. Such speculation hurt the U.S. dollar, which increased gold and bullion’s appeal as a haven.^[6]

However, the Federal Reserve signaled midweek it saw the recent U.S. economic slowdown would not rule out a June interest rate rise.^[7] The market is reading that the Fed isn’t over-emphasizing the winter slowdown and the poor March payrolls” said Tai Wong at BMO Capital Markets in New York. The subsequent low unemployment data further pressured gold prices; Ole Hansen of Saxon Bank said “Since the Fed yesterday said it is not too worried (about the economic slowdown) because it’s seasonal, a set of data that points towards confirming that statement, makes the market a bit jittery.”

Meanwhile, in Europe, Greek Prime Minister Alexis Tsipras reshuffled his negotiation team handling talks with European and IMF lenders, reducing geopolitical uncertainty by suggested he was fortifying efforts to ease tensions and strike a deal for aid to avoid Greece defaulting on payments.^[8]

By Lisa Casagrande | https://www.goldbullionaustralia.com.au