Gold and silver took another tumble as both bullion prices: For gold, it reached its lowest level since the beginning of the year; silver came down below $18 for the first time since August 2010! The latest FOMC meeting had a slightly more hawkish tone than expected albeit no major headlines were released. The other big news item from the week was the Scottish referendum that concluded with Scotland remaining as part of the UK. The sharp gain in the U.S dollar, following these events, was enough to weaken not only precious metals but also other commodities including oil and natural gas. This week, the main reports from the U.S are the monthly update of the core durable goods, home sales data, and last update of the GDP for the second quarter. In Europe the flash manufacturing PMI reports for Germany and France will come out along with German Ifo Business Climate Index. ECB President Draghi will testify before the European Parliament’s Economic and Monetary Committee. Finally, China’s flash manufacturing PMI will be released earlier in the week. So let’s review the economic outlook for the week of September 22nd to 26th.
The latest FOMC meeting provided some headlines such as an end to QE3 program in October; the median federal fund rate estimate for the end of next year was revised up; another member in the FOMC turned in favor of explaining the term “considerable time”.
For a more detailed account of the latest FOMC meeting breakdown – check out our new podcast.
Alas, all these little headlines didn’t deal head on with the uncertainty around the timing or the pace of the rate hikes expected to come up next year. Nonetheless, these turn of events were enough to drag down precious metals: Gold and silver prices took another nose dive; last week, they fell by 1.21% and 4.13%, respectively.
Their recent fall coincided with strong demand for USD. Further, the demand for gold as an investment declined — gold hoards in the GLD ETF, the world’s biggest gold ETF, fell last week. The current gold holdings are at 7767.404 tons by the end of last week – nearly 1.5% below the previous week and down by 2.33% since the beginning of the month.
The main event of the week will be the economic reports on the progress of the U.S economy including core durable goods and last update of the GDP for the second quarter: In the previous month, manufactured durable goods grew by 22.6% to $300.2 billion back in July, and all manufacturing industries excluding transportation fell by 0.8%. This time, the current estimates for a gain of 0.7% in manufacturing industries excluding transportation.
The GDP in the previous estimate for the second quarter reached 4.2% — slightly above the first estimate and much better than in the first quarter. Back then, the U.S GDP contracted by 2.9%. The current estimates are that the GDP will slightly rise to 4.6%. If this estimate is beaten and the GDP report shows a higher gain, this could have modest positive impact on the US dollar. The same goes for the core durable goods report. In such a case, precious metals could resume their downward trend.
A couple of housing sales figures will come out this week as well. They may also have a modest impact on the forex markets and consequentially precious metals.
The U.S equities also rallied last week as the S&P500 index rose by 1.2% in the previous week. If the stock markets keep recovering, this could steer more investors into equities and away from precious metals.
My guess: Precious metals are likely to keep falling down at a slower pace.
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