The FOMC released the minutes of the last meeting. The news about the minutes was enough to pull up the U.S. dollar against leading currencies and drag along the way gold and silver. The odds of the FOMC raising rates in the coming meeting this year rose last week, which also put additional pressure up gold and silver prices. This week, the main report to be in the lookout is the U.S. GDP for Q1, second estimate. Other reports and events include: U.S. pending and new home sales, EU monetary development, U.S. durable goods, German consumer climate, unemployment claims, and U.S. consumer confidence. Here is an outlook for May 25-29, 2015:
The minutes were mostly optimistic as FOMC members blamed the poor data on transitory factors including weather conditions, labor dispute at West Coast ports, and residual seasonality effects – the latter could be responsible for showing slower growth in the first quarter of the past few years. In any case, this news was enough to bring back up LT yields, strengthen the U.S. dollar and drag down gold and silver.
Following the release of last week’s reports, the implied probabilities of a rate hike, based on the pricing of U.S. bonds, rose to 27% for a September and 62% for December – these figures are higher than last week. The zigzag in these numbers on, nearly, a week by week basis only illustrates the uncertainty around the Fed’s next move. This is likely to keep the volatility in the bullion market high.
This week the GDP for Q1 will be released – this is the second estimate. In the first estimate Q1 grew by 0.2%. The current estimates are for a -0.9% — a contraction. A decline in GDP could be enough to bring down USD and pull back up gold and silver. In the U.S. other notable reports to come out this week include: new and pending home sales, and durable goods. More positive news about the US economy could drive further up the USD.
By the end of last week, gold holdings in the GLD ETF dropped again by 1.2% to 715.26; The ETF’s gold holding are up by only 0.4% for 2015, year-to-date.
After a few weeks of weakness for the U.S. dollar, it bounced back in the past week. This gain, along with the rise again of long term treasury yields played in the background for the recent descent of precious metals prices. The minutes of the FOMC only showed FOMC members are still optimistic about the U.S. economy, which may have provided the push needed to drag back down gold and silver and raise the odds of possible rate hike in the coming months. But this week’s GDP for Q1 could change this sentiment — especially if the GDP shows a higher contraction in the first quarter than the market currently projects.
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