Gold and Silver Outlook for April 3-7

The talks over the Trump trade continue to cool down as the markets are slowly adjusting to the fact that perhaps there will be far fewer legislations passed under the current administration – including on tax reform, health care and trade – than previously expected. This has helped drive down the USD and LT interest rates – two trends that pushed back up gold and silver. This week the markets will focus again on the economy with the minutes of the FOMC and NFP report will lead the way in moving bullion prices.    

One indication for the sobering up of markets from the “Trump trade” is the drop of equities – mostly financials and highly taxed companies that would have stand to benefit from Trump’s promises to “fix” Washington. Another indicator is the recovery of the Mexican peso – partly due to the efforts of the Mexico’s central bank by raising rates – even though it lost more than 15% following the election results back in November. And now long term interest rates have also been falling and boosting up gold and silver prices. Nonetheless, the markets are still pricing in another two hikes this year by the Fed: The implied probability for a June hike is 57% as of Monday; and 53% chance for two hikes by  December  — in both cases nearly unchanged from the previous week. So this means the drop in 10 year treasury yields to below 2.4% is less to do with the Fed and more to do with expectations for lower inflation pressures and no to little fiscal stimulus any time soon.

These shifts in the markets are likely to keep pressuring up gold and silver prices until the markets were to see any changes in the hard data to warrant a reassessment of projections.

And this week the NFP report will be released and could move markets if it comes way off of current expectations: For now, the markets expect the headline figure to reach 176K jobs and wage growth to be 0.2%, month over month or 2.7% annual growth – which isn’t far off the growth rate recorded last month. If any of these figures –especially the wage growth – were to come well below expectations, this could have an adverse impact on equities and drive up gold and silver prices. A much higher gain in wages will do the opposite.

The minutes of the FOMC will also come out this week and present what FOMC officials were debating as they decided to raise rates back in March.

What’s next?

Based on the current market sentiment, the gold and silver markets could continue to gain momentum especially if the minutes of the FOMC don’t reveal a much more hawkish Fed than currently perceived by the markets and the NFP report were to fall short of expectations. But as long as the “Trump trade” is falling out of favor the bullion market is likely to benefit from this shift.

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