Gold and Silver Outlook for January 23-27

So the Trump train is still flat on its tracks as the “risk-on” mode in the markets is slowly dissipating. But this doesn’t mean, it’s going to be smooth sailing for gold and silver even though both metals have rallied since the beginning of the year by 5.2% and 7.6%, respectively. For the coming weeks it will mostly revolve around three main questions: How will the new administration set up its policy? Is the US economy showing any signs of slowdown? What’s next for the Fed? Based on the answers of these questions the market will decide if it’s risk on or risk off. For gold and silver this could also mean a lot of choppy trading ahead. But if the markets were to remain skeptical about how much fiscal stimulus the Trump adminstraion will actual provide, this could keep pushing down the USD, yields and precious metals.  

The FOMC, another key player in moving markets, will convene for the first time this year next week.  The implied probability for a June hike slightly picked up to 72%; the chances of at least two rate hikes by December rose to 72%. If the FOMC were to move forward and raise rates three times this year, this could help push up long term interest rates. But for now, the markets are still trying to figure out how loose the U.S. fiscal policy will be and what does it mean for monetary policy.

The chart below shows the movement of 10 year treasury yield and gold prices over the past three months. As you can see, both of these assets starts to reverse course of the Trump trade around the middle of December – around the time the FOMC raised rates. This could imply the Fed still maters in this market even though the fiscal side has become relevant again – after it hadn’t been for a long time in the U.S.

gold and yield 2017 Jan

Source: FRED

In terms of economic data, the main report of the week is the U.S. GDP for Q4. Currently, the market expects a growth rate of 2.1%. Even though this report doesn’t tend to move much gold and silver prices, it could still play a role in moving the dollar.

Final point

Gold and silver could get another boost this week if the markets were to remain skeptical about Trump’s plan to boost economic growth via government spending and tax cuts. But considering it’s still unclear what kind of fiscal policy will come out of the new adminstraion, the markets will remain very choppy; and gold and silver could face some headwinds if the sentiment changes back towards risk on mode.

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