Gold and Silver Outlook for January 16-20

The bullion market is slowly recovering as long term treasury yields – which had risen up until a couple weeks ago following the U.S. elections over expectations of higher inflation pressures – have started to decline again. This shift in the bond market along with the USD losing some ground against leading currencies has also helped drive up the demand for gold and silver. But will this trend persist? Is this recent rally a shift towards a risk-off mode in the markets that will continue to boost the demand for precious metals? Let’s examine what’s next in the markets and try to figure what to expect in the bullion market.   

If the main driver of U.S. financial markets has been the Federal Reserve in recent years, this is has changed this year with the election of Trump. Now, the markets are trying to figure out what kind of fiscal policy there will be and how the Fed will react to it. So while the Fed remain a key factor in moving markets, it will take the back seat for – at least – the near term. Nonetheless, it’s important to note that Fed Chair Yellen will give a couple of speeches on Wednesday and Thursday. They aren’t testimonies in the House but could still move markets especially if she hints of less hawkishness from the Fed in 2017. The implied probability for a June hike remained flat at 69%; the chances of at least two rate raises by September slightly declined to 42%; for December the chances slipped to 68%.

In terms of economic data, the main reports to be released are U.S. CPI and in Europe the ECB will announce of any changes to its cash rate; the markets don’t expect the ECB to make any changes to its policy at this time so it isn’t likely to move markets.

But the main event of this week will be the inauguration of Trump as President on Friday. For now, the markets still price in more stimulus from the U.S. government. But the realization of its scope only once the budget will be sent to approval of the Congress; this means by March we are likely to get a look at a draft of what kind of stimulus, if at all, will be in this year’s budget. But this week could also be a realization moment for the markets as they digest what kind of President Mr. Trump will be. For now, it seems the anxiety in the markets is building and the Trump bump may have peaked. And if the USD keeps devaluing against the Euro and yen and long term interest rates continue their decline, gold and silver are likely to keep getting a boost.

Bottom line

The markets are slowly adjusting to the fact that maybe the fiscal stimulus may be much less than previously expected. This is expressed with the drop in equities, drop in LT treasury yields and USD. For gold and silver this means higher demand. And if the inauguration raises further the anxiety in the market this could lead to another bump in bullion prices.

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