The gold and silver market heated up last week after they didn’t do much in the previous week. The minutes of the FOMC meeting may have partly contributed to the rally of precious metals by the end of last week: The minutes revealed the FOMC may keep the interest rates for a long time until the inflation start to pick up towards the Fed’s target of 2%. This dovish tone may have sparked another rally of gold and silver. Will gold and silver keep heating up? This week, Yellen will testify; the U.S retail sales, PPI, industrial production, housing starts, Philly fed manufacturing index, UoM consumer sentiment. In Europe, EU and GB CPI, German economic sentiment, EU industrial production and Draghi’s testimony are the main weekly events. Bank of Canada will decide on its rate for this month. Finally, in China the GDP for Q2, industrial production, and new loans will be released. So let’s examine the economic calendar for the week of July 14th to 18th.
During last week, the price of gold increased by 1.27%; the average price reached $1,326.88/t. oz which was 0.21% above last week’s average. Gold ended the week at $1,337.4/t. oz.
Silver also rallied by 1.54%; further, the average weekly rate was $21.19/t oz, which was 0.31% above last week’s rate.
Let’s review the main reports that could impact the precious metals market during July 14-18
U.S
The minutes of the recent FOMC meeting may have provided some backwind to the bullion market even though they had little impact on the USD.
The dovish tone in the recent minutes along with Yellen’s comments in the last press conference may have been enough to drive up gold and silver prices. From the minutes of the recent FOMC meeting:
“The Committee again stated that it currently anticipated that it likely would be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continued to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remained well anchored.”
The phrase “considerable time after the asset purchase program ends” suggests it could be more than a few months until the FOMC starts to raise its cash rate. As long as the market expectations are for no change in the Fed’s cash rate, this may benefit the bullion market by keeping investors in gold and silver – metals that are considered safe haven. Do these metals serve as safe haven? Is the Fed’s policy likely to lead to a spike in inflation in the near term? In my opinion the answer to both questions is no.
But for near future, these developments are likely to benefit the yellow metal.
This week, Yellen’s testimonies before the Senate Banking Committee and House Financial Services Committee during this week could pressure further up the prices of gold and silver. Yellen’s statements in the past FOMC meeting press conference and the minutes seem to have a positive impact on precious metals.
Moreover, several economic reports will be released including Philly fed index, housing starts, building permits, retail sales, industrial production, and UoM consumer sentiment. These reports estimate the progress in consumer spending, manufacturing and housing. If these three aspects of the U.S economy picks up, it could influence the FOMC members in the coming meetings. Also, a recovery of the U.S economy could steer investors towards equities and away from bullion.
During last week, the US dollar slightly depreciated against the Yen and Aussie dollar. It remained nearly flat against the Euro. The correlations among gold, silver and leading currencies pairs have moderately strengthened again last week, but they remained weak.
China
In China several key economic updated will come out this week including: GDP for the second quarter, new loans and industrial production. Since China took the lead from India as the world largest importer of gold, the progress of this economy could hint of the direction of the demand for gold in China is heading. If China’s economy doesn’t pick up, this could impede the growth in demand for bullion.
Finally, during last week, gold holdings of SPDR gold trust ETF rose again by 0.46%. The ETF is still down by 0.15% since the beginning of the year. Gold holdings were at 800.047 tons by the end of last week. If the ETF’s gold holdings keep rising, this may signal the demand for gold as an investment is strengthening.
Final note
Gold and silver are getting back-wind from the dovish policy of the FOMC, which could keep pulling up the prices of gold and silver this week. Even if the Chinese economy doesn’t show much progress, it will only play a modest secondary role in impacting the bullion market. Finally, if the U.S economy keeps recovery, this could pull up equities and thus curb down the rally of gold and silver.
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