Gold and silver lost some steam in the past week as interest rates picked up again and the U.S. dollar strengthened even though the ECB and BOE didn’t introduce any new policy last week. This week’s main events will focus back to the U.S. and will include the FOMC meeting and the GDP for Q2. But it should also be noted that the BOJ meeting is also happening this week and is likely to move markets as analysts expect the BOJ to introduce new policy this time. So let’s see what’s next for gold and silver for the week of July 25-29 starting with the FOMC:
The table below shows the market reaction to the past FOMC statements (2015-2016).
Source: FOMC and Bloomberg
The market doesn’t expect any change to policy and the big question will remain what the Fed will hint as for raising rates in the coming months. As for the short term outlook about the Fed’s cash rate, according to Fed-watch, as of July 22nd the implied probability of a rate hike in July remained flat at 2.4%; for September the chances are at 20% — slightly higher than in the previous week; and for December the odds of a hike have also rose to 52%. So the market still expects a coin flip chance for a rate hike by the end of the year. And if the Fed were to release a hawkish statement – keep in mind there is no press conference or an update to its outlook – then we could see another rise in in the implied probabilities. If so, this turn of events won’t vote well for the direction of gold and silver that could keep coming down. But the Fed, given the high uncertainty in the markets mainly coming from Europe and the recovery of the USD, may try not to rock the boat and keep a balanced statement – i.e. leaving the door open for a rate hike and acknowledge the recent positive news coming from the U.S. (e.g. strong NFP report). This is a more likely scenario that will enable the Fed to raise rates if they feel the market is heating up as the year progresses. In this case, gold and silver could still come down if this news were to have a positive impact on interest rates.
And then on Friday the GDP for Q2 will be released. Currently, the market expects a growth rate of 2.6%; any higher rate could also be considered as a bullish indicator and thus could also raise the odds of a rate hike – especially if the FOMC policy statement comes out hawkish.
Finally, the BOJ is also expected to convene this week for its policy meeting. If the BOJ introduces more stimulus this could drag back down the Japanese yen. And a relatively stronger USD could have a modest adverse impact on gold and silver prices.
ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) edged up by 0.03%, week on week, to 963.14 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) remained flat at 348.58 million ounces.
The gold and silver markets cooled down in recent weeks as interest rates and the USD started to gain some momentum again. And the FOMC could continue this trend if its statement, which is currently expected to remain relatively dovish, were to suggest a possible rate hike in the near term. Otherwise, if the statement doesn’t make any big changes to the statement’s wording. In this case, gold and silver could still come down as the markets are pricing a very low chance of a hike anytime soon.
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