Fed officials were able to influence markets that a rate hike in March is a very likely option. This shift has not only raised long term interest rates but also bullion price. This week the markets will look for additional clues to determine whether the Federal Reserve were to postpone the upcoming rate hike. Let’s examine what’s on this week’s agenda and what does the current sentiment mean for gold and silver?
So now that the markets are convinced that the chances of a rate hike are very high in the upcoming meeting by the FOMC later this month – the chances according to Bloomberg are close to 100% and the in bond markets the implied probability for a March hike spiked from 22% back in late February to nearly 80% as of the end of last week; the chances of a June hike are 90% and in December the chances of at least two hikes grew to 85% — the gold and silver markets should be taking a beating. And sure enough, gold lost 2.5% from its value last week; silver – 3.5%. But this only works if the markets don’t change their mind about the March rate hike. This all comes down to the next NFP report, which will be released on Friday. Short of a really bad report (e.g. jobs growth of less than 100K or wage growth of less than 2.4%-2.2%) this report isn’t likely to persuade market participants that the Fed will change its current path of another hike this month. The other factor that could make a change is if market volatility, which has remained subdue this year, will pick up again. The low volatility in the markets is also one of the key reasons the Fed is moving towards raising rates now rather than in the coming months. For bullion, if the Fed keeps pushing rates higher and market volatility doesn’t rise, their prices could continue to suffer.
The NFP report, which will be released on Friday, is estimated to show a gain of 185K jobs and a wage growth of 0.3% month over month or 2.8% on an annual basis. So the markets also expect solid numbers from the jobs report.
Besides the NFP report, the ECB will also convene for its monetary policy meeting and decide of any changes required. The markets don’t expect any major changes this time. So this event, while remains important and could move the Euro, isn’t likely to have a strong impact on gold and silver.
The sentiment for gold and silver has shifted once the markets turned a page and accepted the high chance of a rate hike in March. This sentiment will only change if market volatility in equities were to return – something that may influence FOMC members to wait for the next meeting before raising rates; or if the economic data start to disappoint: in this week’s case, this means a surprisingly disappointing NFP report. Otherwise, gold and silver prices are likely to experience additional downward pressure.
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