Gold and Silver Outlook for October 10-14

Gold and silver took another beating as the USD gained some more momentum over the rising chances of a rate hike by the FOMC and the collapse of the British Pound over Brexit woes. And this week the focus will likely to further dwell on these two issues: When will the FOMC raise rates and how the Brexit vote impact the British economy. All this will play out as the U.S. presidential debate was held on Sunday night and will likely to have a ripple effect on the financial markets.   This week’s main events will include: Minutes of the FOMC, retail sales, and JOLTS report. So let’s review what’s next for this week.  

The NFP report wasn’t too impressive with a headline figure of 154K jobs – lower than the market estimate of 172K; but the jobs report wasn’t bad either: The participation rate edged up and wages also grew by 0.2% month over month. This report, however, didn’t reduce, but rather raised, the odds of a rate hike the market estimated for December: As of the end of last week, the implied probability of a rate hike in November slipped to 8.3%; while for December the odds rose to 69.5%.

In Europe, the British government has set a timeline for getting out of the EU, which will be by the end of Q1 2017. How will the Brexit impact the British economy will still likely to shake up markets considering there is a great deal of uncertainty around it; so for now as long as the British pound falls, this is likely to help boost the USD in general; this is something that won’t help gold and silver. Another thing that may not help bullion prices is the upcoming minutes of the FOMC meeting. Considering there were three dissenters the minutes may show how divided the FOMC is. If the minutes show the FOMC is more incline to raise rates this year, than this may also have a net negative for gold and silver via a stronger dollar and higher yields. Other U.S. reports that will come out this week include: Retail sales and JOTLS. If these reports show better than expected results they could also raise the chances of a rate hike. Finally, Chair Yellen will give a speech on Friday titled: “Macroeconomic Research After the Crisis”. If she were to talk about the FOMC’s policy this could also move markets on Friday.

ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) rose by 1.16%, week on week, to 958.9 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) decreased by 0.7% to 360.292 million ounces.

Final point

The bullion market didn’t have a good couple of weeks on the back of a stronger USD and rise in the chances of a rate hike. At this point, the markets are fairly convinced the Fed will move with a “one and done” rate hike in December. The minutes of the FOMC could further raise the chances of a hike if the minutes were to reveal how close the Fed was towards raising rates back in September. As long as the USD gains more strength and yields slowly recover, gold and silver prices aren’t likely to pick up.

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