The bullion market cooled down again last week even though the recent FOMC statement was relatively balanced and the market’s reaction was relatively calm. This upcoming short week is likely to entail low volatility as the year is winding down. The main reports for the week include: U.S. GDP for Q3 (final estimate), core PCE, new home sales, core durable goods and existing home sales. Here is an economic preview for December 22nd to 26th and a rundown of last week’s main events.
Last week’s FOMC meeting concluded with, as expected, a change in the wording of the statement: The FOMC omitted the term “considerable time” with reference to the timing of the first rate hike. But the FOMC also hedged this omission by switching the term with another one – patience. And they also stated that it should be considered a clear continuous of the current policy, i.e. the decision to raise rates is only data driven and could take time until the next one will occur. So this “musical chairs” game with wording resulted in the statement being a bit convoluted. All in all, it didn’t lead to big reaction from gold and silver that remained relatively stable during the release of this statement, as you can see in the table below.
It seems that the FOMC statement was accepted as relatively balanced and as such didn’t have a strong adverse impact on gold and silver. Also, precious metals already dropped in the days leading to the statement.
Despite the modest reaction in gold and silver to this news, the U.S. dollar did have a strong reaction to this news as it sharply rose against the Euro and Japanese yen. The recovery of the U.S. dollar may have, on a weekly scale, brought down gold and silver. This trend could continue, in which U.S. dollar rallies against leading currencies. Last week, U.S. dollar appreciated against the Euro, yen and Aussie dollar by 1.8%, 0.7% and 1.4%, respectively.
This week, the U.S. GDP, core durable goods, and core PCE will be released and they may have a short term impact on the prices of gold and silver. For the GDP, the current market estimates are for a modest bump in the current growth rate figure of 3.9%. This news may have a modest impact on the direction of precious metals. The PCE and core PCE are expected to come up. But as long as the core PCE remains well below 2%, it’s likely to keep the FOMC on the fence as to whether to raise rates in 2015.
Since this week is expected to be short, the volatility in the precious metals markets is likely to slowly subside. Even though, during the holiday season there could sudden surprises and a spike in volatility as was the case in the recent Thanksgiving holiday with oil prices.
By the end of last week, gold holdings in the GLD ETF declined to 724.552 tons– a 0.16% slip; it’s also 6.2% lower than its levels recorded at end of September.
The bullion markets is expected to future weak, especially if the U.S. dollar keeps coming down and the U.S. data figures are better than expected. The FOMC didn’t make it clear when the next rate hike will occur but for now this ambiguity is keeping gold and silver from plummeting down. The expected low volatility in the coming couple of weeks is likely to keep precious metals close to their current levels.
For further reading: