Market Updates

Precious metal prices have eased in the past five trading days, with investors a little skittish ahead of the upcoming Federal Reserve meeting, which is scheduled to take place next week.

The yellow metal has fallen to USD $1,111.95oz, whilst the AUD price has pulled back below $1600oz, currently trading at $1573oz. It has fallen approximately $50oz since the start of the week, offering an opportunity to investors looking to add to positions on this pullback.

We wouldn’t be surprised to see the market tread water for the next few days, with few major catalysts likely to drive prices in the lead up to the afore mentioned Fed meeting.

Personally, we expect the Fed to hold fire, heeding the warning (or is that begging) from the IMF and the World Bank, both of whom have suggested they should hold off any rate hikes for now.

Not only is economic data out of the United States tepid at best, but there is clearly a global economic slowdown taking place, not to mention the additional volatility we’ve seen in financial markets of late.

Corporate profits in the United States are also under pressure, in no small part to the monstrous USD rally we’ve seen in the past year, whilst business investment intentions remain weak.

Nevertheless, any hike, or even the threat of one before the end of the year will likely impact the gold price, though we aren’t at all convinced it will lead to a major sell off, as many are forecasting.

Indeed as we’ve discussed in previous market updates, there have been many periods of time where the Fed has been hiking rates aggressively, and rather than sink, the gold price has instead moved meaningfully higher.

The price action in gold, and what was happening with interest rates between 1971-1974, 1976-1980 and 2001-2007 are great illustrations of the point above, with gold performing incredibly in these periods, alongside tightening by the Fed.

The bigger story this week has again been share market volatility, which markets all over the place. Earlier in the week, the Nikkei rallied by over 7%, a ridiculous move for a developed market economy that speaks volumes about how divorced from economic reality financial markets have become.

We’ve also seen the ASX jump around quite a bit, closing the week out just 5,071 points, perilously close to the 5,000 point mark.

All this reinforces the importance of diversification away from an over reliance on financial markets as a whole, and why holding at least some of your portfolio in physical precious metals makes sense. Personally, I’m treating the recent pullback in gold and silver, and the small rally in the Australian dollar as a buying opportunity, adding to my own holdings this week, and in that I’ve been joined by a huge number of our clients, with retail volumes rising over the last few days.

This is a continuation of what has been a very busy few weeks volume wise, with the sell off in stocks in August no doubt contributing to some safe-haven demand amongst all investors, including many SMSF Trustees.

It’s been another solid week for local precious metal investors, with the price of gold currently sitting north of AUD $1600oz, whilst silver is trading above AUD $21oz. Further weakness in the local currency, which at point earlier this week traded below USD $0.70 has been the major driver, with gold in USD essentially unchanged over the past 5 days.

Gold’s performance in AUD, and the role precious metals more generally have played protecting the wealth of Australian investors this year should not be understated, especially in light of what has again been a volatile trading week on the local stock market.

The ASX is again flirting with the 5,000 point marker, some 1,000 points lower than where many market forecasters predicted it would be by end 2015. Relative to the ASX, Gold in AUD has outperformed by nearly 20% YTD, no doubt one of the reasons that volumes for the yellow metal, as well as silver, have surged noticeably.

Volatility was not confined to the Australian stock market either, with oil prices jumping from below USD $40 to nearly USD $50 in just a few days, as the chart below highlights.

The volatility we’ve seen in financial markets this week is but the latest skirmish in an ongoing battle that dates back to the beginning of the GFC, and indeed the multi decade credit binge that led to it.

The market crash that we saw back in 2007 and 2008 was a natural response to the investment world sobering up (temporarily at least) and realising that there is a limit to all asset bubbles and indeed to economic expansion themselves, especially when they rely on the perpetual expansion of credit. The flight from overvalued risk assets was hardly unexpected.

The recovery in asset markets that we have seen since early 2009 has also been quite natural, as trillions in QE and over 600 interest rate cuts have pushed investors into risk assets, even though economic growth remains weak, debt levels are higher than they were pre GFC, and company earnings have been goosed up by financial engineering.

And so we come to Q3 2015, a time where market historians will note a handful of important forces are at play.

• The worlds second largest economy, and most important contributor to global growth over the past 15, and especially last 5 years, China, is experiencing significant growing pains.

• At the same time, the central bank of the largest economy in the world, the United States Federal Reserve, threatens (and that really does seem to be the appropriate word) to increase interest rates for the first time almost a decade.

• Meanwhile, commodity prices, despite the extraordinary growth in emerging market economies in the past 15 years, have plunged, with the Bloomberg Commodity index of 22 raw materials this week closing at it’s lowest level since August 1999.

• Finally, despite the greatest credit binge in history, and the mathematical impossibility that developed market sovereigns will be able to honour their debts in dollars, euros, yen or pound sterling, sovereign borrowing costs are at their lowest level in 5000 years, dating all the way back to the Babylonian Empire.

That is the field of battle that we are all on, and once one recognises it, increases in volatility, and the wild swings in risk assets we’ve seen the past 5 days can hardly be seen as a surprise.

But what should investors do? How do they win this war that is raging between the real economy and financial markets, and ensure they can protect, and hopefully grow their own wealth in the period ahead.

In an article dealing with the tragic death of Adelaide Football Club coach Phil Walsh earlier this year, journalist Mark Robinson reported on a conversation Walsh had with an SAS leader during Walsh’s time at the West Coast Eagles.

According to Walsh, the SAS leader commented that only three things determine a battle, which were

• Field Position

• Fire Power

• Morale of the Troops

The article went on to comment that the morale of the troops was really the only thing that was in the control of the SAS leader, and indeed a football coach, so he saw great merit in spending a lot of time focusing on that factor.

I was re-reading that article overnight and thought those comments were highly relevant to investors today, and how they should be thinking about their portfolios.

For ultimately, there are three primary factors that will determine returns in the coming years, which are;

• Global economic conditions

• Global monetary settings

• Valuations, and the price investors are paying to own financial assets

And if we draw a line between the SAS leaders comments and financial markets, we can see that global economic conditions and global monetary settings are much like the field position and the firepower.

They are outside of our control!

We can have a view that the global economy will improve in the coming years, or that it won’t, but we don’t really know, and whilst we all play our own little role in it, none of us is big enough to drive the good ship GDP in any particular direction.

Similarly, we can take a view on where interest rates and monetary policy will head, but again we can’t really know. Perhaps it will tighten, but then again, perhaps we will remain in a world of ZIRP and real NIRP, with QE on top for years to come.

And perhaps those monetary settings will continue to exert their somewhat benign influence on the real economy, through eased borrowing costs and minimal official inflation, whilst continuing to support asset prices.

But it is also possible that in the coming years, as in every other occasion in history where such desperate monetary policy measures have been undertaken, unintended and largely negative consequences of QE and ZIRP will rear their ugly head.

Richard Fisher’s warning that _"Inflation is a sinister beast that, if uncaged, devours savings, erodes consumer’s purchasing power, decimates returns on capital, undermines the reliability of financial accounting, distracts the attention of corporate management, undercuts employment growth and real wages, and debases the currenc_y”, is something all investors should be aware of, even if the threat is not on the immediate horizon.

Again, when it comes to where monetary settings will head, and what their impact will be on the economy, none of us can be truly sure.

Instead, much like a SAS leader or a footy coach can only fully be in control of the morale of their troops, the only thing we as investors can control is the price we are willing to pay for the assets we buy.

Are we comfortable buying developed market sovereign debt at negative real yields, when they’ve been in a bull market for over 30 years?

Are we comfortable buying Australian property when it too has been in a bull market for the better part of three decades, with prices at all time highs, and rental yields at all time lows.

Are we comfortable buying international shares, which if we use Shiller CAPE as a guide, are already trading at 25 times earnings, fully 50% above the long term average and at a historical entry point that suggest a high risk of significant losses in the decade ahead?

How investors approach this battlefield in the years ahead is a personal decision, but I for one will not concentrate too much of my own, or my families money in financial markets today.

The valuation that I would need to pay, which is the only thing I can truly control, is simply not attractive enough, and warrants a more cautious approach.

And whilst none of us can know with 100% certainty what will happen in the economy in the years ahead, and what the impact of the extraordinary monetary largesse we see being deployed around the world will be, we will not ignore economics, or history, to paraphrase Ray Dalio.

As such, we will continue to keep a portion of our wealth in physical gold and silver.

As Bill Bonner once commented. Gold may go up. Gold go may go down. But gold will not go away

Until next week

Disclaimer

This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. Any prices, quotes or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.

It’s been a week to remember for global financial markets, with equities and bonds the world over experiencing wild gyrations in value, and volatility spiking.

The precious metal sector has been caught up in the excitement, with gold pushing higher early in the week, reclaiming USD $1150oz for a time, only to ease back in the last 72 hours, as equity markets turned higher.

Silver has had a tougher time, caught up in the broad commodity carnage, and has fallen roughly 5% for the week in USD terms, though it is still above AUD $20oz.

Amazingly, this recent price action has pushed the Gold/Silver ratio to an incredible 77:1, though at one point earlier in the week it was nearly 80:1

As you can see from the chart below, relative to gold, silver is as cheap now as it was back when the GFC hit.

It’s been another very solid week for precious metal investors, with the AUD price of gold closing in on $1600oz. In USD terms, the price has now rallied 4% for the week, and is comfortably back above $1150oz

Year to date this means that the price of AUD gold is up $150oz, or approximately 10%, which is about the annual average return for the precious metal in the last 15 years.

Just how good (though not spectacular) a return that is comes to light even more when we consider that the local stock market is now in the red for the year, frustrating investors who have felt ‘forced’ into it as a result of the 50bps of interest rate cuts the RBA has inflicted on them.

As for what has caused the rally this week, we see three primary forces at play which are responsible for the move in gold. Not only are we seeing some serious volatility in the equity market, with the S&P off sharply overnight, but we’ve also see the USD weaken in the past 48 hours, with expectations of a rate hike in September falling. We discuss both of those in more detail later in this piece. Finally, we’ve seen some short covering in the market, which was not unexpected considering how stretched it had become.

The gold rally over the last week is also no major surprise when you consider what the charts were looking like in early August. Gold was bouncing around the USD $1,080oz mark, and most market commentators and mainstream media (Bloomberg, CNBC, etc) we’re producing ever more bearish headlines and ‘analysis’, predicting prices to go lower.

We at ABC Bullion did blog about the sell-off and the expected rebound in price, which you can find here:

Gold prices have risen 2% this week, climbing back above USD $1100oz, as China surprised markets with three consecutive devaluations of the yuan, in an attempt to stimulate their slowing economy.

The upward move in gold was exceeded in the silver market, which is up over 5% for the week in USD terms, currently trading just below USD $15.50oz.

The AUD is effectively unchanged for the week, trading at USD $0.7368, meaning precious metal price moves in the local currency have been similar to that experienced in USD.

The AUD gold price is currently sitting at $1513oz, now up nearly 5% for the year.

The upwards movement in precious metal prices this week was not unexpected, with the market looking due for a bounce, something we hinted at last week when we discussed sentiment and investor positioning in the precious metal complex.

It’s been another quiet week in the precious metals market, with the price of gold trading in a relatively narrow range between USD $1,080oz and USD $1,095oz, with participants focused on the upcoming non-farm payrolls report from the United States, which will be released tonight Sydney time.

Silver has also been in a roughly US $0.40 cent trading range, between USD $14.40 and USD $14.80, up a couple of per cent for the week based on last Fridays London Fix price.

And whilst the market has been focusing on the upcoming employment numbers due out tonight, there has been no shortage of economic data out for the week already.

In the United Kingdom, we’ve seen the Bank of England “dove up”, with the BoE stating that “The near-term outlook for inflation is muted and the falls in energy prices over the past few months will continue to bear down on inflation at least until the middle of next year.” They went on to say that; “Given the likely persistence of the headwinds facing the economy the MPC expects Bank Rate increases, when they come, to be gradual, and to be limited to a level below past averages.”

The continued dovishness by the BoE, plus existing QE programmes in place in both Japan and Europe are already putting upward pressure on the US Dollar, and will make it increasingly difficult for the Fed to raise rates meaningfully, although the market is increasingly looking toward a September lift off.

We aren’t convinced that will end up happening, as economic data out of the United States continues to underwhelm. Apart from a solid ISM non-manufacturing PMI result, the majority of data out this week from the United States this week was poor.

The ISM manufacturing PMI report came it at just 52.7, a contraction from last month and signifying exceptionally modest expansion, whilst construction spending month on month rose just 0.1%, well short of expectations.

The ADP private sector employment report also grew by just 185,000 jobs, well short of expectations, whilst we also saw a blow out in the US trade balance, which came in at -$43.8 billion in June 2015, up from -$40.9 billion in May.

No point better illustrates the still tepid nature of global growth, and the danger that the much stronger dollar already posses than a sub point from the news release highlighting the latest trade deficit figures which highlighted that;

After the violent sell off that took place at the start of last week, it hasn’t been surprising to see the precious metals sector consolidate, with bullion prices essentially unchanged over the past five trading days.

The gold market is currently sitting at USD $1,085oz for gold, whilst silver is still trading below USD $15oz, with the market for both metals set to pull back 7.3% and 5.5% in USD terms for the month of July.

Australian dollar investors have been protected by the fall in the dollar over the course of July, with metals prices in AUD set to fall 3.25% for gold and just 1.12% for silver this month.

Sentiment towards the market remains incredibly bearish. We are seeing some banks predict a short-term rally in the market, though most think it will prove short lived, with the dominant themes of a USD rally, a Fed interest rate hike and broader commodity price crashes underpinning the lack of buying enthusiasm for the precious metal sector.

The overwhelming bearishness (which we see as a good sign), is best summed up in the chart below, which shows the net position for hedge funds in the gold futures space. As you can see, hedge funds are actually net short gold today, something that hadn’t been seen in over a decade.

Precious metal investors suffered yet another rude shock early this week, with the price of gold plunging below USD $1100oz, with a nearly USD $50oz sell off occurring in a matter of minutes in early Asian trading on Monday the 20th July.

In total, some 5 tonnes of gold was dumped on the Shanghai market in this two minute window, an extraordinary amount when one considers DAILY trading volume is typically in the vicinity of 25 tonnes.

At the same time, according to ANZ Bank, there was also 7,600 August 2015 gold contracts traded on the COMEX, equivalent to another 23 tonnes of metal.

The market has since bounced around, trading back above USD $1100oz at one point, though this morning we see that the metal has eased again, currently sitting at USD $1,091oz, whilst silver has fallen below USD $15oz, with the gold/silver ratio now sitting at 73.82

Australian dollar investors have not been spared this time around, with the AUD price falling back below AUD $1500 per oz. Year to date, this has reduced gains (yes, investors are still UP for the year in local terms, albeit mildly) to just 2%, though the recent sell off has also led to marked increase in trading volumes for bargain hunting physical buyers.

Gold prices eased again this week, falling below the USD $1150oz level, as easing tensions around a potential Greek exit from the Eurozone, plus a somewhat hawkish sounding Janet Yellen dented demand for precious metals.

AUD prices have held up better, with an ounce of gold currently trading just below AUD $1550oz, whilst silver is still holding above AUD $20oz.

Starting with Greece, we see a scenario where politicians in Athens signed off on a deal that is in many ways harsher than those which Greek voters recently rejected in the now utterly pointless referendum.

The bailout package, which could come to some 86 billion euros, still faces a few hurdles, not least of which is the question mark around funding from the IMF, who would be expected to contribute a portion of the required funds.

The Financial Times created a useful graphic discussing where the money is due to come from, and what it would likely be spent on, which I’ve included below.

Precious metal markets have eased this week, despite extreme uncertainty in world markets caused by the latest drama in both Greece and China. Whilst many would have expected ‘safe haven’ demand to push metal prices higher in the face of a plunging Chinese stock market and a potential ‘Grexit’, we actually saw gold re-test the USD $1150oz mark, whilst silver fell below USD $15oz at one point.

We’ve since seen a minor recovery in the metal market, with gold currently sitting at USD $1160oz, whilst silver has moved back toward USD $15.50oz.

For local investors, we’ve actually seen an uptick in the market, as weakness in the AUD has seen the gold price head above $1550AUD, whilst silver has effectively been flat.

When it comes to Greece, despite voting NO in the referendum, there is still clearly no ‘solution’ in place, with it beyond doubt the country will need some kind of debt relief, which effectively means asset write offs for whoever owns that debt.

On that score, Eurocrats will be less worried today than what they were a few years ago when Greece first hit the headlines, as a lot of that debt has been transferred from private sector banks onto the backs of the taxpayer, who ultimately stand behind the various bailout mechanisms the ECB and the like have cooked up.

The broader issue therefore is not so much about financial contagion anymore (which is not to say that’s not an issue), but the politics of this whole process, as ‘debt forgiveness’ for Greece will inevitably lead to other nations asking for the same treatment. Furthermore, the truth that dare not speak its name is the reality that the entire western developed world has (to varying degrees) got the Greek disease, with unpayable sovereign debt hardly limited to our Hellenic cousins.

One final complication with the whole Greek drama is the geopolitical implications of a potential Grexit. As John Browne, writing for Euro Pacific Capital in mid June this year so aptly put it; “Despite Greece's almost complete lack of financial integrity, neither NATO nor the EU can afford the political cost of a Greek exit from the EU.”

Precious metal prices have eased this week, despite the ongoing drama in Greece, which many thought would have lent support the precious metal market. Indeed it’s been downhill for most of the week, despite a brief rally Monday, with the price of gold testing USD $1155oz overnight, before stabilising somewhat.

AUD Gold briefly went above $1550oz earlier in the week, though has since pulled back to $1530oz, whilst silver is sitting at AUD $20.74oz. The lack of upside movement in gold this week has frustrated many investors in the sector, who thought the price in USD would surge past USD $1200oz, with safe haven buying set to propel prices higher.

It hasn’t eventuated though, and bears are now suggesting gold is sure to sink further in the coming weeks, with the argument being that if Greece isn’t a catalyst, nothing will be. Mark Hulbert offered a more interesting take than this, pointing out that gold market timers are still too positive on the prospects for the yellow metal, and that a stronger upward trend will only eventuate once these people have thrown in the towel re the metals prospects.

You can read more about that here.

A few weeks ago, ABC Bullion Chief Economist Jordan Eliseo sat down to discuss all things macroeconomics, investing and bullion with Gordon T Long, Co Founder of the Financial Repression Authority. He discussed how Australia is effectively “catching down” to the rest of the world, why even lower interest rates are on the way in Australia, and why liquidity should be a primary consideration when choosing which assets to hold in your portfolio today.

The precious metal market has been under pressure again this week, with the price of gold dropping back below USD $1200oz, whilst silver is back below USD $16oz.

The majority of the pullback occurred earlier in the week, when the market began pricing in a ‘resolution’ in Greece, though expectations that a deal between the Greek government and the EU-IMF was imminent have since been dashed, with the latest headlines suggesting talks are ‘going backwards’.

Renewed tension on that front has not been enough of a catalyst to boost the precious metals market though, with the US Dollar index rallying, and gold prices still subdued.

For Australian dollar investors – the local currency has been relatively stable – trading around the USD 0.77 cent range, with the price of the yellow metal still sitting above AUD $1500oz, whilst silver is AUD $20.68 as we write.

Data wise this week, we’ve seen durable goods orders in the United States fall by more than expected, though the less volatile ex-transports figure was more in line with expectations. GDP figures for Q1 also confirmed the slowdown in the economy, though personal spending figures for May were up strongly, perhaps suggesting some much delayed real wage growth is finally flowing through to spending.

Gold posted strong gains overnight as the price of the yellow metal reclaimed the USD $1200oz mark. Currently sitting at USD $1202oz, the yellow metal was up close to $20oz for the day. The market clearly interpreted the latest Fed policy decision and accompanying statements as dovish, with some economists now stating that the expected September rate hike might be further delayed, whilst continued concerns over Greece are still providing support for bullion.

On that note, despite testing the patience of markets, investors, politicians and everyday citizens for about 5 years now, Greece was again headline news this week, with German newspaper BILD reporting that the Greeks were seeking to delay a scheduled payment (of circa 1.5bn EUR) to the IMF by 6 months, a suggestion that was quickly denied by Greek government officials.

The issue of this payment arose again overnight, with IMF chief Christine Lagarde stating that Greece won’t be given a grace period past the 30th June, and that the Hellenic state will be considered “in default” if it has not paid up by the end of the month.

The ongoing drama (we should say tragedy) in Greece will keep investors nervous for the next 10 days at least, though if recent history is any guide, there will likely be another delay, or temporary solution put in place, just in time for European bureaucrats and officials to go on their taxpayer funded summer vacations.

Back to the Federal Reserve, and their interest rate decision this week, it was always expected that they’d keep rates unchanged at 0-0.25 per cent. Market moves in the aftermath were always going to be driven by interpretations of their monetary policy statement, and the press conference they gave after announcing their decision.

And in their usual case of doublespeak, they stated that they believed the US economy was strong enough to handle a rate hike, but that one wouldn’t be forthcoming until further improvement in the labour market is seen, and when they are reasonably confident inflation will head back to its 2 per cent target.

In the press conference held after the interest rate decision was announced, Fed chairwoman Janet Yellen sounded decidedly dovish, at least in my opinion.

Precious metal prices have retreated again this week, with the price of the yellow metal now trading below USD $1180oz, down just over 1%. Silver is also down for the week, falling just over 2%, and currently sitting at USD $16.27.

It’s been a similar result for Australian dollar investors. Earlier in the week we saw the currency rally, as an RBA on hold and better than expected GDP results for the quarter seeing the AUD bid.

This was very short lived though, with disastrous retail sales and trade figures released Thursday confirming the negative outlook for the local economy, and again increasing the likelihood of further RBA rate cuts this year.

Other data out this week in Australia was lukewarm at best. Gross operating profit numbers for the quarter showed a 0.2% rise, but they were still down over 7$% for the year. Building permits, whilst still up 16% for the year, fell short of expectations.

AiG Group published their latest surveys looking at the outlook for companies in manufacturing, services and construction. Manufacturing recorded a pleasing rise, but it has come after five months of contraction, so it’s nothing to get too excited about just yet. Ditto for services, with the sector still in contraction, as it has been for much of the post GFC era.

This is troubling as services dominate the Australian economy, and especially as authorities are so desperate to see the economy rebalance from our reliance on mining.

The one silver lining in the services result was the explosion in the employment sub-component of the survey, which has been expanding for 6 months now, with last month signalling the fastest pace of expansion since May 2004.

This mornings construction survey was also disappointing, especially the readings for home and unit building, which have been the supposed bright spots of the Australian economy.

Back to gold, and the weakness in the last week has been frustrating for bulls, as it has come despite noted volatility in fixed income and equity markets, something ECB President Mario Draghi warned investors to expect going forward.

There has also been no USD strength evident either, which one would typically expect to see when gold is struggling. Indeed we’ve even seen the IMF publically ‘advise’ the Federal Reserve on monetary policy, suggesting the Fed should wait until 2016 before hiking rates.

We’d have expected to see gold receive stronger support in the face of these developments, and the lack of support this week does highlight the still weak tone for the market.

Increases in rates across the board and relatively soft physical demand out of Asia have no doubt contributed to the weakness, and there could be a few nervous short term longs who have decided to lighten positions heading into tonight’s non-farm payrolls report in the USA.

With that key release due to dominate market sentiment leading into what will be a relatively quiet week (retail sales notwithstanding) next week, it’s a good time to put together a quick technical outlook, for the USD, AUD and Gold.

Gold prices have been in retreat this week, giving up some of the gains from their recent break above USD $1200oz. After closing out last week at USD $1220.50oz (London PM Fix), the market has pulled back, with gold currently sitting at USD $1207oz, down 1.1% for the week.

Silver has been a little more resilient, effectively unchanged for the week, though down from where it was on Monday, when it had pushed as high as USD $17.70oz

For Australian dollar investors, the decrease in the AUD, which is now back below USD $0.80, has supported the market, with AUD gold now trading for $1529.13, whilst silver is sitting at $21.90.

The pullback has been disappointing for gold bulls, who were hoping the metal would push higher after last weeks rally, and has served as a reminder of the still difficult environment for precious metals, and why dollar cost averaging is still the most appropriate strategy for investors.

Strong housing starts data out of the United States this week (the strongest since 2007), alongside a rally in the USD were partially responsible for the pullback, with US economic data, which has been weak all year, slightly surprising to the upside this week. Commodity prices were off a little too earlier in the week.

All up, this seemed to knock the wind out of gold’s sails, and were seemingly a more important driver for the precious metal market than the release of the minutes from the last Federal Reserve Open Market Committee (FOMC) meeting. Those minutes, which were released mid-week, were overwhelmingly seen as dovish, with the market increasingly pushing back their expectations of when the first Fed interest rate hike will be.

Some of the key comments in the minutes were the following;

After weeks of consolidation in and around the USD $1200oz level, gold prices finally broke to the upside this week, currently sitting at USD $1222oz. Silver has also rallied strongly, up an impressive 7 percent for the week, last trading at USD $17.48oz

With the Federal Budget set to dominate the news this week, we thought we’d pen a note regarding the outlook for business investment in Australia, and why, despite the lowest cash rates in history, it is still so subdued.

Perhaps worse than the current malaise is the fact that the outlook for business investment in the coming years is hardly encouraging either. Whilst the whole country has ‘priced in’ the end of the capital investment boom in the mining sector, it isn’t looking much better elsewhere, outside of property construction perhaps.

That it is a problem is hardly debatable, with even the RBA acknowledged the issue in their latest statement of monetary policy, where they noted that “indicators of non-mining business investment intentions suggest that a significant pick-up is not in prospect over the next year or so.”

Another week, another battle for USD $1200oz gold, as the market continues to trade just below this key level. After dropping below the critical mark last week, gold climbed back to USD $1197oz on the 5th May (London PM Fix), before easing back into the mid $1180oz range where we find it today.

The Silver market has been much the same, trading between USD $16.15 and USD $16.70oz, as the precious metal market continues to look for a decisive break out one way or another

AUD gold prices have pulled back below $1500oz, with silver below $21oz, as the strength in the Aussie dollar (despite the RBA interest rate cut), impacting the market for local investors.

I personally used that opportunity to top up my silver position, as I think the AUD rally will be relatively short-lived, in part because I think the RBA will continue to cut rates in 2015 and beyond.

As has been the case for some time now, the gold market is being impacted by a number of forces, some which are providing support, whilst others continue to dent demand for the metal.

In the last week or so, we’ve seen a not unsubstantial rise in bond yields the world over (something we’ll discuss in more detail below). Rising yields, especially in a period where official inflation is so benign, are of course a mortal enemy for precious metal bulls, as they effectively raise the opportunity cost of investing in the metal.

Anyone who can remember the gold price smash of 2013 will also likely remember that US bond yields rose substantially that year, with the 10 year note going from around 1.60% to 3%.

On the other hand, we’ve seen continued pressure on the USD, with the dollar index pulling back below 95 (down from near 100 in April). This is partly a result of a very oversold Euro gaining some traction, as well as the continued deterioration in US economic data, which is forcing more market participants to push back their expectations of when the Federal Reserve will first raise interest rates.

We’ve also seen a little risk aversion in global stock markets of late, with our own ASX under severe pressure in the last few days. Nervousness regarding equity positions will not necessarily have been helped in light of Janet Yellen’s comments this week regarding the markets, with the Chair of the Federal Reserve stating that she “would highlight that equity valuations at this point generally are quite high. They’re not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low”

Finally, whilst this is a very early call, there are some who see inflation stirring – with oil near a 5-month high after the huge crash of 2014. This is despite the overnight fall of some 3%. The charts below (which go to the 7th of May) show what has happened in the oil market over the last year, with the huge fall between May 2014 and January 2015 easily observable, as well as the noticeable pick up since then.

‘Sell in May and go Away’ is a famous stock market saying, meant to protect investors from seasonal declines in equity markets by encouraging them to lighten up on their holdings by the end of April. This is because May has often heralded a period of weaker market returns, if not outright declines.

Overnight, the message appeared to be directed toward the precious metal market, with gold starting the month of May on the wrong foot, dropping down toward below USD $1180oz at one point.

The silver market was also rocked, plunging below USD $16oz, with the sell off occurring in an incredibly short period of time, as stops were triggered after a US initial jobless claims report which hit 262,000 last week, a 15 year low for the reading.

For some reason this seems to have tipped the market into taking a hawkish interpretation of the latest FOMC statement, despite the appalling Q1 GDP report which showed the US economy slowing to a standstill at the start of 2015, and a lacklustre personal income report.

There are a handful of key data points due to be released in the next 24 hours, including manufacturing reports from Markit and the Institute for Supply Management, as well as construction spending, vehicle sale sand consumer sentiment figures. A series of strong reads could be enough to send gold back below USD $1180oz, and comfortably below AUD $1500oz.

Alternatively, if those numbers come in below market expectations, we could see the market gravitate back toward the all important USD $1200oz level we’ve been oscillating either side of for some time now, with a huge week ahead in terms of economic data which could drive markets.

Up until last night, it was shaping up as yet another slow week in the precious metal market, but a wild night on Wall Street and a rise in bond yields dented demand for the precious metal complex.

As we discussed last week, the gold price in US dollars has been battling the $1,200 mark for the whole month of April. Up until last night, it seemed evenly matched, but action in the past 24 hours indicates that the bears could be about to take control again. Last night saw a drop through this level to $1,186 US and a further selloff could be on the cards for US gold.

Primary cause for the soft outlook for precious metals is again the strength in equity markets, with DOW above 18,000 points, and the S&P500 above 2,100 points. In Japan, the NIKKEI climbed back above 20,000 points as well.

Despite the soaring US Dollar, US company earnings (the headline ones anyway), are holding up better than expected too, though a host of companies are still disappointing when it comes to revenue and sales growth.

Weakness in the broader commodity complex also isn’t helping, with copper under serious pressure in the past 48 hours, down roughly 6%, despite stimulus efforts from the People’s Bank of China.

US existing home sales also flew higher overnight, about the first US data point that has surprised meaningfully to the upside in some time. Though one swallow does not make a summer, this will embolden those who are again expecting the US economy to ‘bounce back’ from a poor Q1, with expectations of stronger growth later in the year.

This line of thinking will be tested again later this week, with the all important durable goods orders report for March set to be released. If that is stronger than the 0.4% (ex transports) result expected, gold could again take a hit.

On the plus side for gold right now, we’re seeing continued buying out of Russia, and the heightened chances of a Greek exit from the Euro will provide some support.

Furthermore, should Durables miss this Friday, then expectations of a Fed rate hike could be pushed back even further, which could hurt the USD and provide some kind of bid for gold, or at least encourage some short-covering. As it stands, when we look at US macro data and the lack of official inflationary pressure, there seems little reason for the Fed to hike right now. When (or should I say IF) the market comes to price that in more fully, we could see a stronger bid for gold.

But all up, there isn’t any huge reason to expect bullion bounce strongly right now, which dovetails in with a technical picture that is also somewhat troubling.