Gold and silver ETF have jumped on renewed hopes central banks will announce more stimulus to help the global economy. European Central Bank President Mario Draghi last week pledged aggressive action to stabilize debt markets.
Precious metals led commodity prices higher last week after Draghi committed to do “everything it takes” to keep the Eurozone intact.
Spanish 10-year bond yields ended the week below the 7% level that prompted other peripheral countries to seek bailouts.
While Spain and its banks will receive bailout funds, the exact mechanism remains unclear. Draghi is now trying to seek government and national central bank approval for a plan to ease borrowing costs in Italy and Spain before the next ECB meeting on Thursday.
More liquidity injections into the Eurozone banking system appear the most likely option at this stage, with the ECB still resisting the direct support of government finances.
Gold/silver ratio near two-year low
ECB president Draghi’s comments fueled a gold rally, pushing the gold price above US$1,600/oz by the end the week, while silver gained 2%.
Net speculative gold futures positioning reported by the CFTC show that net bullish positions dropped to near a four-year low in the week ending 20 July. Data for last week will be released on Tuesday.
Given Draghi’s comments and the positive impact it has had on the gold price, it is likely the new report will show a bounce in net positioning. In contrast to futures investors, gold exchange traded product investors have been accumulating positions, with total gold ETP holdings now less than 1% below their all-time high.
While the silver price has benefited from expected ECB easing, it continues to underperform gold, with the gold-silver price ratio near a two year high of 58 vs its two year average of 50.
Silver ETP holdings have been on a modest upward trend since early July, indicating some investors view the recent silver price range as a good entry point.
Key events to watch this week
Central bank policy meetings will take center stage for precious metals investors this week, with the Federal Reserve, the Bank of England and the European Central Bank holding meetings.
The pressure will be on both the Fed and the ECB to follow in the BOE’s footsteps in introducing more monetary stimulus. The US nonfarm payrolls release looms large this week and following the lackluster US GDP release last week could add further upside price momentum to precious metals prices, particularly silver and gold.
Comments from FOMC Board members have indicated that at least 150k new jobs per month are viewed as necessary to stabilize unemployment. Figures have been consistently behind target and if the trend continues it is clear the Fed will need to act.
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