Gold and Silver Report for May 15-19

The recent economic data pouring out of the U.S. including CPI and retail sales were soft enough to pause the downfall of bullion as the markets reassess the chances of a Fed rate hike in June. Nonetheless, both gold and silver prices remained nearly flat on a weekly basis. Looking forward the focus in the markets will continue to be the political developments in the U.S. – which have yet to really cause any sharp movement in the financial markets – and economic data coming out of Europe. Let’s first look at the current low volatility in the markets and what does it mean for gold and silver.     

Despite the high uncertainty in the U.S. with respect to the political developments including the firing of FBI director Comey by President Trump – the latest headline and very likely not the only one that will lead the news this upcoming week – the financial markets remain at ease with record low volatility.  This low volatility could also be related to market participates in a “wait-and-see” mode because they try to figure out if we are nearing a bear market in equities. After all, the markets have been burned in the past over reacting to political events: Most recent the election of Trump and Brexit; in these two events the market was wrong to think they will have an adverse impact on equities and push down treasury yields. Gold and silver investors also didn’t benefit from these events. And so now the markets aren’t reacting to political news. But that’s not all. The markets also prepare for a higher interest rates by the Fed, which should push up long term yields. So far, however, this hasn’t really happened as the 10-year yield remains range bound and anchored to 2.3%-2.4%. If yields don’t rise, gold and silver prices aren’t also likely to plunge by much.

As of the end of last week the markets are giving a 74% chance for a rate hike in June – a modest drop in chances compared to the previous week. The recent economic data from the U.S. weren’t too impressive with retail sales rose by lower than expected gains and CPI also came short of market anticipations. In total, without higher inflation, the Fed is less likely to raise rates, which should help ease down LT yields – even though they are still likely to remain close to the 2.3% mark – and pull slightly up gold and silver prices.

For now, market volatility remains low, which isn’t helping bullion investors. Low volatility also means the uncertainty in the markets isn’t priced. Until a major economic story breaks, the market is likely to remain at this state and look for the economic data to as whether the Fed is more or less likely to raise rates. I still think the markets are placing too high a chance of a June hike. If this assessment is correct, then we could see a short-term rally in precious metals if and once the markets were to reduce the chances of a June rate raise. Until then, gold and silver aren’t likely to move much and remain at their current respective price range.

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