Gold and silver didn’t do much last week as the markets await for a signal from the Federal Reserve about the direction its cash rate; so far the market has been receiving mix signals from Fed officials and even the recent release of the minutes of the last FOMC meeting showed that some members still consider raising rates this year. This week all eyes will be set at Chair Yellen as she will give a speech in Jackson Hole on Friday. And the U.S. GDP for the second quarter will also be another event that could move bullion prices. Other reports and events to consider include: German business climate, U.S. core durable goods, EU manufacturing PMI, and U.S. consumer confidence. Let’s breakdown this week’s main events:
Even though summer is still in full swing, which is likely to keep trading volume low, the market could still present sharp price movements especially if markets were to revise their outlook about the Fed’s cash rate. As of the end of last week, the implied probability for a September rate hike bounced back to 18%; and for December the chances of a hike have also risen to 51%. But these estimates are likely to change a lot in the coming weeks until the September meeting. The FOMC is trying to keep the markets ready for a rate hike this year, which could further impede the progress of gold and silver prices. Most recently, Vice Chair Stanley Fischer pointed out that the U.S. economy is nearing the Fed’s goal so that a rate hike this year – as soon as September – remains on the table. This news helped drive up a bit the U.S. dollar and also bring down gold and silver. Moving forward, the main event of the week will be Yellen speech in Jackson Hole; she isn’t likely to shake up the market considering it’s mostly an academic conference and Yellen hasn’t used this forum, so far at least, to signal what’s next for the FOMC as Bernanke did in the past when he was Chairman of the FOMC. If she were to introduce any policy or offer insight about what’s next for the Fed, this is likely to move the chances of a rate hike – and in doing so indirectly impacting gold and silver prices.
Besides the Jackson Hole conference, another main event to look for is the U.S. GDP for Q2; this will be the second estimate, which is currently expected to come out lower than the first estimate – 1.1% compared to 1.2%. If the report comes out higher than expected, this could further fuel speculations of a rate hike and even pressure down bullion prices. The direction of the USD will also play a secondary role in moving gold and silver; the USD will also take the lead from the direction of Yellen and the economic data coming from the US mostly the GDP, consumer confidence and durable goods. If these reports beat expectations they could help pressure up the USD; and a stronger dollar could hold back the recovery of gold and silver.
ETFs holdings: By the end of the previous week, gold holdings of the gold ETF SPDR Gold Trust (GLD) slipped by 0.5%, week on week, to 956 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) increased again by 1.1% to 355.469 million ounces.
Gold and silver prices could take another hit this week especially if U.S. dollar keeps gaining strengthen and interest rates were to pick up. Chair Yellen isn’t likely to introduce any new insight about what the Fed will do next, which will leave markets speculating about the Fed’s timing of its next rate hike. And as long as the markets aren’t convinced about what the Fed will do next, gold and silver aren’t likely to resume their rally in the near term.
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