Gold and Silver Diverge On Strong Economic Data

gold 2 bnsEconomic numbers gave investors some reason for optimism this week. Jobs numbers were mostly better than expected, yet a weak manufacturing report raised concerns about economic growth. U.S. markets were closed Thursday in observance of Independence Day. Traders are now preparing for the marquee event of the week, the US nonfarm payroll release. On Thursday the ECB and BoE statements kept markets hoping. Traders can never know what to exactly expect from central bankers. Both banks held rates and policy but sent the market volatility meter climbing with their statements. As we ease into today’s data release the US dollar is continuing to climb toward recent highs touching 84.15 while the euro is weak at 1.29. Gold closed down on Thursday and is off in the Asian session this morning trading at $1243.25 down by $8.65

Investors liked what they saw in the job numbers, mostly from the ADP’s monthly figure on private-sector payrolls. These figures came in above expectations. First-time unemployment claims came in slightly below forecasts. Still, investors are waiting for the big jobs numbers due out Friday. Economists surveyed predict the U.S. economy added 155,000 jobs and the unemployment rate fell to 7.5% in June.

Today’s report is important not just for its view into labor markets, but also as a guide to Federal Reserve policy. The Fed, however, will not ignore events going on overseas. A negative change in the global economic outlook or in financial markets could stop the Fed from discussing an exit from the bond buying program.  The importance of the global economy on the U.S. recovery was evident in the latest trade numbers. The U.S. trade deficit unexpectedly widened in May. The global slowdown cut into U.S. exports and the relatively healthy U.S. consumer sector brought in more imports. Depending on June data, foreign trade may have subtracted a half-percentage point from second-quarter economic growth that was already looking meager before the trade numbers were released. The payrolls report is the biggest market-mover on the economic calendar. This time, though, the report may share the spotlight with global turmoil.

The slump in gold prices has hit the European Central Bank where it hurts: its balance sheet. The consolidated balance sheet of the ECB and its 17 member central banks plunged at the end of last week as a result of a revaluation of gold prices, data provided by the ECB showed Wednesday. The regular quarterly revaluation meant that the Eurosystem’s gold holdings fell 115 billion euros.

Gold prices are likely to come under pressure on spot and futures market on Friday as the global markets await US jobs data later in the night. In between, movements in the currency market could play a minor role in the price swings. Indications are that the US data may show that more jobs were added, signaling that the economy is improving. That could eventually lead to the US Fed Reserve scale back monetary stimulus.

Silver is trading at 19.293 against the strong US dollar, supported by the strong recovery in the US as demand for metals continues to increase, along with better than expected PMI data from around the globe. Base metals are expected to go down as continued weakness in Chinese economy and caution ahead of US payroll data can put pressure on prices. Copper is trading at 3.117 down by 34 pips this morning after strong gains throughout the week.


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