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Dollar Weakness Aiding Rise of Precious Metals

By the close of last week the dollar index (DXY) dropped to 94.78 (-0.46%).

On Tuesday the index was affected by a March balance of trade statistic. The deficit increased to $51.4 billion, against an expected $41.2 billion. By the end of the day the index was being supported by the publication of the April ISM business activity index in the service sector. It’s important since the service sector totals a significant part of American GDP. The index increased to 57.8 against an expected 56.2.

Further statistics related mostly to the labor market. Wednesday brought with it some disappointing data on April employment from the ADP. The indicator fell to169,000 against an expected 200,000. On Thursday the situation changed for the better. The labor market data forced the index to rise from its weekly minimum. The number of initial unemployment benefits (by the 1st May) dropped to 265,000 against an expected 280,000. The number of repeat applications for the benefit also dropped from 2.228 million (by the 24th April). The week closed with the publishing of a report on NFP (Non-Farm Payroll) job creation. This stat stood at 223,000 against an expected 224,000. Looking also at the unemployment level, which met expectations at 5.4%, one could say that it came out neutral.

Labor market data is important since the Fed’s interest rate decision depends on it. Little movement, coupled with rising inflation will strengthen expectations for growth of the US dollar.

All of last week precious metals were gaining ground on the weakening of the dollar. A troy ounce of gold reached $1188.39 (+0.85%), platinum hit $1141 (+0.84%), silver peaked around $16.46 (+1.90%) and palladium went to $799.35 (+3.28%).

Most likely, this week gold quotes will fluctuate in the region of $1150-1190.

Important macroeconomic data this week (EET):

  • GDP in Eurozone – Wednesday 12:00
  • Retail sales in USA – Wednesday 15:30

 

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