Precious metals continued to be pressured on account of the ongoing rise in interest rates, bullish market sentiment (at least in certain sectors) and stronger USD. But the Trump train may have come to brief halt as markets are starting to adjust. This could also mean a short term rally for gold and silver. This week’s focus will be on the U.S. economy with economic data that include: GDP for Q3, consumer confidence, and NFP report. How will these reports play out in the bullion market?
So the Trump train – the rally in the USD, interest rates and equities – may have come to an impasse as the markets are trying to reassess just how the Trump administration will impact the U.S. economy. For now, the markets still expect more fiscal stimulus in the form of infrastructure spending and tax cuts – although the devil is in the detail and it’s still unclear how it will play out. And up to now gold and silver took a nose dive as markets pushed up the USD and interest rates. But as the markets reassess what’s next for the U.S. economy and how the Trump administration, in the meantime, gold and silver could slowly recover in the near term; and this is more likely if interest rates, which have gone up a lot in the past few weeks, start to come slowly back down.
In terms of interest rates the markets are already pricing in a hike in December: The implied probability of a December hike is 98.2%. But the main question is to look beyond December and just how hawkish the Fed will be in the December meeting; keep in mind, the Fed, based on the September dot plot, accounted for two rate hikes in 2017. So any upward adjustment – which isn’t likely albeit possible – in the dot plot could also further drag down gold and silver.
But even though it’s nearly a sure thing for a December hike, the upcoming reports including the GDP and NFP could reduce the chances of a hike if they come short of market expectations by big numbers: Currently the GDP is expected to reach 3% and the NFP is estimated to report 165K jobs and a month over month gain of 0.2%; if the NFP disappoints by big numbers – i.e. job growth falls well below 100K and wage growth comes down to 2.5% (annually) – this could be enough to drive back up gold and silver as the chances of a hike will decline.
Gold and silver aren’t likely to see a lot of potential upside anytime soon especially if the upcoming U.S. economic data show better than expected results. In the near term, however, as markets reassess what’s next for the U.S. economy, we could see a recovery for gold and silver. But for now it still seems likely bullion is back on the ropes and it will take a big shift from the current market sentiment to make a sharp turn in its current direction.
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