Gold and Silver Outlook for February 15-19

Following FOMC Chair Yellen’s testimony, in which she didn’t rule out the possibility of cutting rates to negative territory all awhile keeping the same mantra that the decision to raise rates will be data dependent hasn’t calmed markets. Also the turmoil that Deutsche Bank faces put even more pressure on equities and intensify the bearish market sentiment. And in times of stress who market participants call – gold busters. Well, just gold and perhaps silver. Since the start of the year and in recent weeks even more so, gold and silver shot up. Will this rally persist? This week we have: U.S. CPI, minutes of last FOMC meeting, Japan Q4 GDP, German economic sentiment, China’s CPI and trade balance, and U.S. housing figures. Here is an overview for gold and silver for the week of February 15-19:

The main event of the week will revolve around the minutes of the January FOMC meeting. Back then, the Fed didn’t change its policy. So the minutes will provide a bit of insight into what the Fed is planning. The dot plot, which only a couple of months ago predicted 4 hikes in 2016, seems so outdated in the current environment. Based on the latest from Fed-watch, the implied probability for a March rate raise fell to only 4%; for a June hike the probability declined to 14%. By the end of 2016, the market still estimates the Fed’s cash rate will be, on average, 0.47% — which implies not even one rate hike this year.

The Fed isn’t likely to raise rates in March and perhaps not at all this year. And for now, lower expectations for the cash rate along with the bearish market sentiment have fueled the rally of gold and silver. The minutes could also indicate whether the Fed is concerned about the latest economic developments. If FOMC members were to present more uncertainty about the progress of the U.S. economy, this could further fuel the growing demand for PM.

And since the Euro and Yen appreciated against the USD since the beginning of February, this trend has also helped drive up gold and silver. If the bearish market sentiment were to persist this week, this could keep pushing up precious metals as more people return to bullion as they consider them safe haven in times of economic uncertainty.

ETFs holdings: By the end of the previous week, gold holdings of the gold ETF SPDR Gold Trust (GLD) rallied again by 1.8%, week on week, to 710.95 tons of gold –up by 10.7% for the year; silver holdings for the silver ETF iShares Silver Trust (SLV) rose by 1% to 312.2 million ounces.

Bottom line

The bullion market is heating up as the market still awaits for grim news about the state of the U.S. economy. Also the latest news about the problems some EU banks – mainly deutsche bank — face has also provided a boost to the demand for precious metals. As long as this sentiment persists and the market keeps revising down its outlook about where interest rates are heading – gold and silver are likely to thrive.

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