The gold and silver market, continued their rally from the previous week – following the weaker than expected NFP report. This time, the minutes of the FOMC didn’t offer any big headlines and updates about the Fed’s decision or the timing of the rate hike. The major central banks including BOJ, RBA and BOE didn’t revise their monetary policies – which may have contributed the deprecation of the USD against leading currencies. And as we have talked in our recent podcast – no news is bad news for the U.S. dollar, which, indirectly, also means good news for the precious metals market. This week, we have several updates from the U.S. including Philly Fed, retail sales, CPI, consumer sentiment, and JOLTS. In China there’s the CPI, PPI and trade balance reports. Any updates from China, mainly if they suggest a slowing down, could also indicate another drop in the probability of the Fed raising rates and an increase in the market anxiety levels – two trends that are likely to behoove gold and silver. But let’s take a closer look at the events of the week and the recent developments in the bullion market.
Last week, there weren’t major headlines to impact the market perception about the timing of the Fed’s decision to raise rates: The implied probabilities for a rate hike in October remained very low at 8%; for a December hike the odds slightly grew to 37%. And for March 2016, the chances are 59%. These low chances for this year are still keeping PM prices from falling to their yearly low levels.
This week, in the U.S. the retail sales, JOLTS and consumer sentiment reports will come out and will lead the way in moving the markets. Other notable reports include the Philly Fed index, U.S. CPI and PPI. If these reports were to adversely impact the progress of the U.S. dollar – lower than expected results may prompt selloffs of the USD – this trend could further pull up gold and silver prices. Moreover, the Philly Fed, retail sales and consumer sentiment are all indictors of economic growth – bear in mind in the past couple of quarters the U.S. grew at a higher than expected pace. The JOLTS and CPI are reports directly related to the two mandates of the FOMC: Inflation and labor market. Last month, core CPI was still low at 1.8%, while CPI at 0.2%. The Fed believes low oil prices have a transitory effect on inflation. But for now, the expectations remain low for inflation to be close to zero. Any gains in inflation could instigate a reaction in the markets for the Fed to reconsider raising rates sooner rather than later. As for the JOLTS, they will pertain for August. The last couple NFP reports weren’t impressive so a boost from the JOLTS – last time jobs opening reaches a new high of 5.75 million – could also help pull up the USD. Otherwise, we could keep seeing selloffs of USD and rise in bullion prices.
Despite the rally in gold and silver prices, the demand for gold ETFs slightly fell: By the end of last week, gold holding of the gold ETF SPDR Gold Trust (GLD) dropped to 687.2 tons of gold – 0.3% fall, week on week; silver holdings for the silver ETF iShares Silver Trust (SLV) declined by 1% to 315.1 million ounces.
The delay – or perhaps we should go as far as saying indecision at this point — of the FOMC to raise rates, which was reaffirmed in the recent minutes of the last meeting, is providing a bit of boost to the gold and silver market. The upcoming reports including consumer sentiment, JOLTS and retail sales will provide additional insight regarding the progress of the U.S. economy. If they don’t meet expectations and fall short, they could provide additional backwind for gold and silver. The CPI will also show where the inflation in the U.S. is heading, which still, for now, seems low. In normal times, low inflation should have pushed down bullion prices, but this time, because it impedes its members from pushing the liftoff button, gold and silver markets may benefit from another delay in raising rates.
For further reading see:
- No News Is Bad News for USD – MM #71
- Financial Market Preview for October 12-16
- NFP Nightmare, Judging Japan and Natural Gas – MM #70
- Another Disappointing U.S. NFP of Only 142K in September | Gold Rallies
- Dollar Defies Doves – On The Fed, Greece And More — MM #68
- Who Is Actually Seeing a Raise?
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