The bullion market is still on a roll with gold and silver gaining nearly 2% last week, as the USD devalues against the Yen and long term interest rates fall – the 10yr Treasury yield fell to 2.31 on Friday the lower level since late November. But will this trend continue this week? The main events include Trump’s speech in Congress, Yellen’s talk, and economic data including U.S. GDP, manufacturing PMI and consumer confidence.
The first thing to come out this week is the GDP report for the fourth quarter (second estimate); this time the estimate is for a gain of 2.1%; update: the report showed a gain of only 1.9% — the same as in the first estimate; but another big figure to consider is that the PCE was revised from 2.2% to 1.9% in Q4 – another inflation indication that the Fed isn’t likely to hurry in raising rates next month. But the main event of the week will be President’s Trump speech to Congress. In his speech the markets will look for what kind of fiscal plan the Trump administration has in mind including the ACA, tax cuts, government spending. Early reports suggest there will be talks of military spending. But if the speech doesn’t deliver on specifics – something that Trump’s speeches so far have been lacking – this could deflate derail the Trump train and send down interest rates, and in the process also gold and silver.
Moreover, if the speech downplays the tax cuts and infrastructure spending promises – something that is very likely and could be pushed to 2018 – this could also result in a upward risk for precious metals and downward risk for equities.
Following the Trump speech, the week ends with Chair Yellen talking about the US economic outlook at the Executives Club in Chicago. The markets will look for hints as to where the Fed is heading, given Trump’s plan – although she is very likely to refrain from referring to fiscal policy as she did in the past. As of last week, based on the implied probability, the estimated chance of a hike in Mach is 22%, in June — 66%; for December the odds of at least two hiked went slightly down to 67%.
Despite the focus of markets over Trump’s speeches, they aren’t likely to cause more than a short-term impact on assets. The direction of the US’s fiscal policy will have a much more robust effect on markets once the budget for the upcoming fiscal year will become clearer in the coming weeks. And based on that budget the Fed could send much more clearer signals about its monetary policy. So the choppy trading is likely to continue with gold and silver getting short term boosts whenever Trump doesn’t deliver fiscal stimulus or pushes it forward to next year.
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