In the past week the price of gold slightly declined, while silver prices bounced back mainly on Friday. Nonetheless, the recovery of precious metals came to a halt this month after their strong performance back in January. Will their recovery restart anytime soon? This week, the minutes of FOMC meeting will be released. Other US reports include: PPI, jobless claims, industrial production, housing starts, Philly Fed index, consumer sentiment; Japan’s trade balance and GDP for Q4 will be published. And in Europe, the minutes of ECB policy meeting, the German ZEW economic sentiment, Euro-group meetings, German flash manufacturing PMI will be the main events. Here is a preview for February 16th to 20th, 2015:
The rise in the tensions between Greece and ECB may have contributed to a higher uncertainty levels in the markets and to the weakness of the Euro. So far this month the USD rallied against major currencies including Euro and Japanese yen. The stronger USD continues to curb down the recovery of the gold and silver.
Also, the implied probabilities derived from the bond yields have increased again last week and reached 20% for a rate hike in June and 43% chance in July. These numbers are higher than the probabilities recorded in a month ago. As a result, long term yields have picked up in the past week, which may have also weakened precious metals. If these trends persist, they could pressure further down gold and silver.
This week, the minutes of the last FOMC meeting will be released. If the report turns to be more hawkish than expected and provide additional hints regarding the next rate hike of the FOMC, this could bring down gold and silver. Besides this report, the main reports in the U.S. include Philly fed index, housing starts, PPI and industrial production. If the reports show the US economy keeps improving, they could further strengthen the USD and thus adversely impact bullion prices.
By the end of the previous week, gold holdings in the GLD ETF changed direction and fell to 768.26 tons – 0.65% fall, week over week; it’s still up by 7.9% for the year, up to date.
Takeaway
The bullion market didn’t do much in the past few weeks after kicking off the year on a positive note. The recent economic reports from the U.S. have raised the odds of the FOMC hiking its cash rate in the second half of 2015. The minutes of the FOMC meeting could provide additional insight behind the last meeting. But for gold and silver to resume their rally, they will have to see a further rise in the uncertainty in the markets, e.g. the continuation of the tensions between ECB and Greece, and for the US dollar’s recovery to reach an impasse. This could happen if the US economic reports don’t meet market expectations. Therefore, a short term and modest rally in the gold and silver is plausible. But the market conditions and expectations need to change.
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