The bullion market recovered last week as the FOMC didn’t raise rates all awhile leaving the door open for a rate hike this year. The FOMC also revised its outlook on GDP growth rate for 2016, core inflation for 2017 and Federal Funds rate. The dot plot showed the Fed expects fewer rate hikes in the coming years and lower neutral rate – revisions that only play in favor for gold and silver. But now the markets will see if this decision will be enough to drive back down the USD and interest rates; these developments will shows what’s next for gold and silver. Besides digesting the FOMC’s decision, the main events of the week include: the Presidential debate, U.S. GDP for Q2 (final estimate), U.S. consumer confidence, core PCE, and Yellen and Draghi’s testimonies. So let’s review what’s up ahead for the week of September 26-30 for bullion prices:
The FOMC meeting without a rate hike – as expected. But the Fed also came out with a bullish albeit also dovish tone. The Fed also allowed itself the possibility for a rate hike later this year – most likely in December considering the U.S. elections will take place in November after the FOMC’s meeting.
When it comes to the dot plot, the Fed revised again its cash rate outlook for 2016-2018 and also the neutral rate, as indicated in the table above.
Following this decision gold and silver recovered, as was the case in four of the past six times this year. The following table shows the reaction of bullion prices to the FOMC’s meetings.
Source: FOMC and Bloomberg
As of the end of the previous week, the implied probability of a rate hike in November dropped to 12%; and for December the odds remained stable at 55%.
This week the first presidential debate will kick off; this could move markets especially if the results of the debate lead to a big swing in the polls for either candidate. The U.S. GDP for Q2 will also come out and will be the last estimate. The market expects a modest upward revision. If so, this could help push up the USD, which may curb down the price of gold. The U.S. core PCE will also be released on Friday; the Fed is looking to see higher inflation. If inflation doesn’t pick up, this may reduce the chances of rate hike, which could help boost the demand for gold and silver. Finally, Yellen and Draghi (separately and on different days) will testify and give public speeches. In fact no fewer than five FOMC members will give public talks this year. This is likely to further feed the market confusion about what the Fed plans to do next. And considering the FOMC is trying to keep the possibility of a rate hike viable for December, its members will try to maintain this possibility – most likely coming from Yellen, Fischer, Powell, and George.
ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) rose by 0.91%, week on week, to 951.22 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) also increased by 0.6% to 364.523 million ounces.
The FOMC provided a temporary boost to gold and silver prices. And over the short run this recovery may persist especially if the USD keeps pulling back down along with LT yields. Also, if the uncertainty in the markets were to rise again – mostly due to grim economic indicators or political instability (mainly if the presidential debate were to shake up the results in the polls) – this could also bolster the demand for gold and silver.
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