Gold and silver declined following the ECB decision to cut interest rate by 0.25pp to 0.75% and deposit rates from 0.25% to zero. This news also adversely affected the Euro/USD. Several U.S reports were published yesterday: U.S jobless claims fell to 374k during last week; U.S non-manufacturing ISM declined by 1.6 pp to 52.1%, which still shows growth but at a slightly slower pace. These items’ effects on the markets were plausibly crowded out by the ECB rate cut. The U.S employment report came out today and the number of jobs added reached 80k. This news could affect not only bullion markets but also other financial markets. Other items on today’s agenda: Great Britain PPI Input, and Canada’s Employment Report.
Gold decreased on Thursday by 0.76% to $1,609.4; silver also fell by 2.16% to $27.67. During July, gold rose by 0.32% and silver by 0.21%. Furthermore, yesterday the SPDR Gold Shares (GLD) also rose by 1.13% and reached by July 5th 155.68. Currently, GLD is falling by nearly 1.03%.
U.S. Non-Farm Payroll Rose by only 80k
In the recent non-farm payroll report for June 2012, the labor market didn’t grow much as it did during the first quarter as the number of non-farm payroll employment rose by only 80k;
The table below shows the relation between the announcements of bullion rates and the results of the publications of the U.S non-farm payroll. If these negative relations will hold and the results of the June report will be above 120k it could mean bullion rates will declined. But following the recent FOMC meeting in which the option of another QE in the near future became very low, we might see a shift in the relation between the US employment report and bullion rates. If these reports will drag commodities and stocks markets down, then these markets might also adversely affect metals.
Currencies / Bullion– July Update
The Euro/USD tumbled down on Thursday by 1.09% to 1.2391. This decline came after the ECB had decided to cut the interest rate by 0.25 pp to 0.75%. There is still a very high linear correlation between Euro/USD and gold. The linear correlation between the two is 0.627 (daily percent changes, for June/July). If the Euro/USD will continue to fall, it could adversely affect bullion.
Bullion rates zigzagged with an unclear trend throughout the week, but they may finish the week on a negative note. Since the U.S employment report didn’t show a big progress and was much lower than many had anticipated, this news is likely to drag down commodities rates. Since major commodities, U.S stocks and Euro/USD are strongly linked with precious metals, this could mean that all these markets will decline during the day.
For further reading: Gold and Silver Outlook for July