Gold and Silver Outlook for September 12-16

Precious metals kicked off last week on a positive note but by the end of the week both gold and silver made a U turn a declined as yields started to pick up again and the USD recovered. The speculation over a possible September rate hike has fueled this selloff. But following the recent speech by Lael Brainard speech on Monday regarding the state of the U.S. economy and its outlook, the chances of a rate hike aren’t likely to rise. Besides this talk, other events and reports on this week’s agenda include: U.S. industrial production, BOE and SNB rate decisions, U.S. consumer sentiment and CPI. So let’s review what’s up ahead for bullion prices for September 12-16:

The FOMC was unable to convey a clear direction about the state of its monetary policy. And the recent selloff over a possible rate hike only demonstrates how uncertain the markets are about what the Fed will do next. As long as the markets revise up the chances of a rate hike, gold and silver are likely to suffer. But FOMC member Brainard, as expected, didn’t change her dovish tone and pointed out toward the downside risk of raising rates sooner rather than later. Following this news, the implied probability of a rate hike in September dropped from 26% by the end of last week to 15% by Monday; and for December the odds have also stabilized around 55%. Looking forward towards the rest of the week, the BOE’s rate decision will be the main event in Europe. But the BOE isn’t expected to chances policy. And in the U.S. the main reports include consumer sentiment, CPI and industrial production. Unless the core CPI shows a higher than expected gain (currently the market projects a monthly gain of 0.2%), the markets won’t revise by much the chances of a rate hike. Thus, as long as the U.S. dollar starts to weaken again and yields resume their downward trend, precious metals are likely to rally.

ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) rose by 0.22%, week on week, to 939.94 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) increased again by 0.9% to 362.719 million ounces.

Final point

The bullion market has cooled down in the past week but it could heat up again as the market slowly revises back down its outlook regarding the chances of a rate hike this month – which for now seems very unlikely. And if the main U.S. economic reports don’t meet market expectations, gold and silver prices could see a short term recovery in the immediate term.

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