It seems the market was waiting for an excuse to start selling off the U.S dollar after it had spiked in the recent weeks against the Euro, Yen and Aussie dollar. Last week, the minutes of the FOMC meting provided the excuse to start selling U.S dollar, after the FOMC members voiced their concerns about the progress of the U.S dollar and the economic slowdown in the rest of the world. This turn of events also provided backwind for the latest recovery of gold and silver prices, after they tumbled down a week earlier. This week, the main economic updates from the U.S that will be released include: Retail sales, PPI, housing starts, UoM consumer sentiment and Philly fed survey. Chair of the FOMC Yellen will also give a speech on Friday. In Europe, the German ZEW economic sentiment, GB employment update, and EU CPI will be published. China’s trade balance and CPI will also come out. So let’s review the economic outlook for the week of October 13th to 17th:
The minutes of the last FOMC meeting didn’t provide a clear direction from the hawks or the doves of the FOMC. We had it all there. This includes opinions from both sides. Nonetheless, the market seems to have reacted more to the members that voiced their concern about the progress of the U.S dollar in the past few weeks. They also stated their concern about the developments in other leading economies including China, EU, and Brazil. In total, this news along with the revised down IMF global economic projection was enough to bring down gold and silver prices.
This week, the main economic reports from the U.S relate to prices (PPI) consumer sales (retail sales consumer sentiment), output (Philly fed index) and housing (housing starts). If these reports meet their current projections and show signs of progress in the U.S economy, this could provide enough backwind for the U.S dollar to resume its rally. Moreover, they could also drag further down precious metals prices.
Despite the recent recovery in the price of gold, the demand for gold as an investment seem to have contracted again — gold hoards in the GLD ETF, the world’s largest gold ETF fell to 759.44 tons by the end of last week – nearly 1.05% below the previous week and down by 4.5% since the beginning of last month.
Finally, the recent dive the U.S stock market took as the S&P500 fell by 3.1% last week. This recent market reaction also coincided with the rally of GLD and SLV. If the U.S equities change course and bounce back next week, this may also coincide with GLD and SLV’s downward shift.
My guess: Precious metals are likely to resume their downward trend especially following last week’s modest gain. If the U.S dollar resumes its recovery, gold and silver are also likely to be adversely impacted by this turn of events.
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