Gold and Silver Outlook for January 9-13

The year has kicked off to a bullish start mainly in equities. Gold and silver, unlike bonds, also had a solid start, even though the markets are slowly adjusting to the Fed raising rates 2-3 times this year. The latest NFP report was overall a good one: Wages grew by 2.9% and while the headline figure rose by 156K – lower than expected – wage growth was enough to drive down bullion prices on Friday. But this year isn’t only about the Fed, it’s also about what the Trump administration will do moving forward.    

The rally in equities has started to subside as the market is changing speeds and now seems to be more in a “wait-and-see” mode. For precious metals this new attitude could turn out to help boost their demand – which has been dwindling for the past few weeks – because this pause could be interpreted as a risk-off mode where gold and silver tend to thrive. This week isn’t a busy one for economic data – the main report of the week is the U.S. retail sales that will come out on Friday – but it’s busy for the Trump administration as Trump’s main nominees to top cabinet positions will be up for Senate hearings and Trump is expected to give a news conference on January 11th – the first one since July 2016. The markets will monitor how the confirmations hearings go and evaluate if Trump were to provide any new headlines about his policies. How the markets will react to either of these events is unclear; but if Trump’s news conference were to rekindle the hype over fiscal stimulus, the reaction could be another equities rally, bond selloff and, a likely, gold and silver retreat. But again, for now, the Trump Train seems to have stopped at its tracks and during this time precious metals could benefit.

Besides the fiscal story, the markets are still digesting what the Fed will do next after the minutes of the last FOMC meeting were released last week. They showed that nearly half of the members considered more fiscal stimulus in their estimates – something that Chair Yellen downplayed back when she delivered a press conference following the December meeting. This could suggest the current outlook of 3 rate hikes may be a bit high and two hikes are more likely, at least until we get a clearer understanding of the scope of the fiscal stimulus.

As of the end of last week, the implied probability for a June hike has risen to 69%; the odds of at least two rate hikes by September slightly picked up to 46% and by December – unchanged at 72%. The higher wage growth has convinced Mr. Market that the Fed could turn a bit more hawkish in 2017.

Bottom line

It seems that whenever the “Trump Train” comes to a halt, or even a pause, gold and silver investors are likely to benefit. The recent economic data including the NFP report also helped drive down gold and silver prices mostly due to the faster growth in wages. So in total, the bullion market could still experience some more gains as long as markets continue this “wait and see” approach about fiscal stimulus; this could be offset if the U.S. economy continues to show signs of growth – in this week’s retail sales report – that will further raise the chances of the Fed raising rates.

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