Winter is coming but the markets are likely to heat up…and the same can be said about precious metals: Even though gold and silver will continue to face downward pressures — if the USD were to keep strengthening and yields to maintained their current levels – they could still see some short term rallies. And this week’s main events include the minutes of the FOMC and the NFP report for December. Between these two reports on the first week of 2017, we are likely to see a surge in market volatility. Let’s see how this week could play out for gold and silver.
The markets have been slumbering over the past week as people were enjoying the holidays. But this short week is likely to experience a bump in volatility. It’s unclear the direction the markets will take but the main story will remain the uncertainty around the U.S. economic policy until the entrance of Trump into the White House on January 20th. As the markets receive more information about how the U.S. budget will shape up, it will become more apparent how the fiscal policy could impact the U.S. economy in the coming years. In the meantime, we are still likely to take the lead from U.S. economic data most notably: the non-manufacturing PMI and manufacturing PMI and non-farm payroll. The main event will be the NFP report: Keep in mind that last time, the NFP was “OK” with growth in jobs of 178K and growth in wages of 2.5%; this time, the markets expect a gain of 175K and monthly growth in wages of 0.3%. If the report were to show much lower growth in jobs or wages – this could be enough to further pull up gold and silver prices on Friday.
But before the NFP, the minutes of the FOMC will be released on Wednesday; the report isn’t likely to shake up markets unless if it were to change the market’s perception of how hawkish the Fed has become. As of the end of last week, the implied probability for a June hike has slipped to 63%; the odds of at least two hikes by September declined 44% and by December — 72%.
These chances could take another hit if the U.S. economic data show lower than expected results and the minutes of the FOMC were to suggest that the FOMC may not be too keen on raising rates three times this year – as the dot plot table suggested.
Gold and silver started off 2016 strong but the rally of the USD, the election of Trump, rise in U.S. treasury yields, slightly more hawkish FOMC and improvement in U.S. economy have all contributed to the drop in demand for bullion as an investment (and most of these factors are interconnected); looking forward, bullion prices are likely to keep being pressured down due to these factors, but if were to see some modest changes in market perception about the Fed’s willingness to raise rates or the health of the U.S. economy, then gold and silver could experience another short term rally. For this short term rally to turn to a trend, the perception will have to substantially change.
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