Precious metals, much like crude oil, resumed their downfall. This week, the main reports from the U.S are the upcoming FOMC meeting and press conference, Philly Fed index, PPI and CPI, FOMC Chair Yellen speaks, industrial production and housing figures. In Europe the main item on the agenda is the Scottish referendum. Besides this event several reports will be published including GB CPI, German ZEW economic sentiment GB employment report, G20 Summit. But for bullion, the main show will remain in the U.S around the next FOMC meeting. So let’s breakdown the economic calendar for the week of September 15th to 19th.
Gold and silver prices continued to fall; last week, they shed 2.84% and 2.87%, respectively, off their value.
Their recent fall coincided with the weakness in the oil market, and the ongoing recovery of USD. Despite this fall, the demand for gold as an investment rallied as gold hoards in the GLD ETF, which is the world’s biggest gold ETF slightly increased last week. The current gold holdings are at 788.404 tons by the end of last week – nearly 0.34% above the previous week but still down by 1.6% since early last month.
The main event of the week will be the upcoming FOMC meeting, in which the Fed may provide some additional information about its future steps including the rate hike and exit strategy – two issues that could stir up the markets. Also, the FOMC will update its economic outlook and Chair Yellen will hold a press conference following the release of this update. It’s expected that the FOMC taper again its seventh QE3 program by $10 billion to $15 billion a month.
But the timing of raising the cash rate remains unclear and FOMC Chair Yellen is likely to keep this issue in the air due to potential adverse impact this news could have on the markets. Moreover, the past two NF payroll reports weren’t too impressive, which may keep the announcement over the next rate hike unknown.
Nonetheless, Yellen could talk about the exit strategy following the huge rise in the Fed’s balance sheet from its QE programs. In six out of the past seven meetings, the bullion market reacted negatively to the FOMC’s press release.
In most cases, the tone was slightly becoming more hawkish and raised the expectations of rate hike next year. But if this upcoming FOMC statement and press conference turn more dovish, it could pull back up bullion prices – even if for a short term. My guess, however, Yellen won’t provide more information about the rate hike, and the tone of the statement won’t change much – this is likely not to play in favor for precious metals.
Besides this news, the Scottish referendum will take place week. It will revolve about whether Scotland should seek independence. This news doesn’t have a direct link to bullion, but it could stir up the British pound in particular and the forex markets in general. This could also have some ripple effect on other related markets such as commodities.
The U.S equities slightly fell as the S&P500 index dropped by 1.1% in the past week. If the stock markets resume their upward trend, this could steer more investors into equities and away from bullion.
My guess: The bullion market is likely to resume its downward trend by the end the week.
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