Gold & Silver News – Dec 8th 2014

Gold and silver declined this week after the US employment report added its largest number of jobs of almost three years, increasing expectations that the US Federal Reserve will raise interest rates soon.

Price and charts snapshot:

On Monday, gold and silver prices saw a massive rebound hitting five-week and four-week highs, respectively. Heavy short covering, buy stop orders in futures, bargain hunting in the cash market, a weaker US dollar index and a bounce in crude oil prices were all supporting factors as the trading week opened^[1]. However after this strong start, Tuesday saw sharply lower price action, relinquishing half of Monday’s strong gains. Lower crude oil prices and a higher US dollar index where bearish forces working against the precious metals. Wednesday saw a moderate gain again, thanks to short-covering in the futures market and bargain hunting in the cash market. However, these gains were limited due to the persistent higher US dollar^[2], with the index hitting a four-year high. On Thursday and Friday, prices declined for two days in a row as the US dollar strengthened and after US jobs data showed much higher than expected new jobs for November, increasing the likelihood of raised interest rates in the near future.

The strong US dollar and positive US jobs data were major influences this week^[3]. The greenback climbed to its highest since 2009 after the higher-than-expected payrolls report^[4]. The US Labor Department reported 321,000 new jobs were added in November, much higher than economists’ predictions and the 10th consecutive month of high job gains. This increases expectation of higher interest rates in the US, which diminishes the allure of precious metals^[5]. For the year to date, gold prices have declined by 1%, while silver has dropped 16%^[6].

In the weekly Kitco News Gold Survey, of 21 respondents only seven expected prices to increase for the coming week while 10 see lower prices and the remaining four see sideways or unchanged prices.

Chris Gaffney, senior market strategist at EverBank Wealth Management, expected lower prices, saying: “A selloff in gold is inevitable with these kind of numbers,”, commenting on the US jobs data, “This tells us rates will rise sooner rather than later.”. However those who remain bullish in outlook note how gold prices have held up relatively well against the face of a stronger US dollar. Ken Morrison, editor of Morrison on the Markets^[7] said that “Gold’s initial reaction to the ‘hot’ jobs number and more specifically to the stronger dollar is a good buying opportunity for gold. Despite the dollar’s strength all week, gold has held the USD$1,200 area well and short-term momentum continues to favor the upside. I expect gold will close above USD$1,200 next week”.

Economic reports out next week are Thursday’s retail sales and Friday’s producer price index report^[8].