Gold and Silver Outlook for May 16-20

The bullion market lost some steam over the past week as the USD rallied against the Euro and Yen; overall gold and silver declined by 1.6% and 2.3%, respectively, on a weekly scale. Looking forward the focus in the markets will be around the UK and US; the ongoing concerns over a Brexit weigh on the financial markets and may also hold back the FOMC from raising rates anytime soon. And in the U.S. the main reports of the week are CPI and minutes of the last FOMC meeting. Other reports and events to consider include: Canada’s retail sales, U.S. existing home sales, Philly Fed index, GB retail sales, Canada’s CPI, U.S. housing starts, GB’s employment report, and EU CPI. So let’s see what’s up ahead for the bullion market for the week of May 16-20.  

The gold and silver market slowed down over the past week; in part this was due to the stronger U.S. dollar; and even though long term interest rates continued to slid, short term interest rates have slightly picked up. But the recent drop in the bullion prices could change if the market were to revise its outlook about the direction the Fed with respect to raising rates. Towards that end we should consider the following three factors playing out this week:

  1. Inflation: the CPI report of the U.S. will be released on Tuesday and could indicate where the U.S. inflation stands. Even though this isn’t the report the Fed follows – the Fed uses the PCE – it’s still an important report to impact the perception of the market regarding inflation. If we were to see a gain in core CPI, this could influence the market to consider higher rates to follow, which isn’t a good turn for gold and silver. It should be noted that while precious metals tend to be positively correlated with inflation – i.e. when inflation rises, people move towards gold and silver – but this relation seems to be a bit more murky now because higher inflation indicates the Fed is ready to raise rates, which should have a negative impact on bullion prices;
  2. Minutes of the FOMC: This will be the last official report the Fed will release before the June meeting on June 14-15; currently the market places a very low chance of the Fed to raise rates this time —  the implied probability for a June hike is only 4% — if the Fed were to consider raising rates it will need to rely this fact in the upcoming Fed minutes;
  3. The Brexit talks: The concerns over the possible adverse ramifications of Britain exiting the EU continue to weigh on the financial markets and in a way could be among the factors impacting the Fed decision; and this week there are several economic reports that will be released in the UK that will put more focus on this country’s state.

The market remains dovish about any rate hikes this year and yet the odds have slightly picked up over the past week: Based on Fed-watch, the implied probability for September is 39% and for December the odds have risen to 59%.

ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) rose by 2%, week on week, to 851.13 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) declined again by 0.3% to 335.07 million ounces.

In conclusion…

The bullion market didn’t have a strong week but this could change if the minutes of the recent FOMC meeting come out dovish or even balanced; also, if the CPI report shows lower than expected gain – currently the core CPI is expected to rise by 0.2% — this could also reduce the chances of a rate hike, which could also pull up gold and silver prices.

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