The weakness of precious metals continued in the past few days as the U.S. dollar keeps climbing and the market becomes more convinced that a December rate hike is a strong possibility. The gold and silver prices have not only erased their gains from October, but also dropped to their lowest levels this year. This week the main reports that could gold and silver are the minutes of the FOMC meeting and U.S. core CPI. While other reports will be release this week such as: U.S. industrial production, EU CPI, BOJ’s rate decision, Philly Fed index, and U.S. housing starts, the bullion market is more likely to react to the minutes of the FOMC and U.S. CPI. So let’s examine the latest developments in the gold and silver prices and what’s next for precious metals.
The bearish market sentiment has pressure down prices of major commodities including gold, silver, copper and crude oil. The recovery of the U.S. dollar has also contributed to the weakness of precious metals. And as the market becomes more susceptible to a December rate hike – the recent NFP report did raise the chances of such a possibility – the USD is likely to keep rising and bringing down gold and silver prices in the process.
This week, the main two events of the week are the release of the minutes of the FOMC meeting and the CPI.
As for the minutes, they will offer an insight behind the latest FOMC decision and may provide additional hints as to its members’ outlook. Following the release of the recent minutes, as you can see in the following table, the price of gold actually rallied.
Source: Bloomberg, FOMC
This time, however, we could see a change in this trend and gold may decline; especially if the report is perceived hawkish. In the past meeting the FOMC released a statement that was considered hawkish as the Fed addressed that it will raise rates in December, providing the economic data don’t disappoint. And although not all economic data were positive – e.g. retail sales and Q3 GDP reports weren’t impressive — the major ones with respect to the labor market and inflation were good enough to allow the Fed to move forward and raise rates. The reaction in the bonds markets, in which yields started to climb back up again also dragged down gold and silver prices.
Besides the progress in the labor market, price stability is also important for the Fed (part of its dual mandate). This week, the core CPI and CPI will be published. Currently, the market expects another gain of 0.2% for the core CPI and CPI. If so, these growth rates could also slightly raise the odds a rate hike next month – something that won’t behoove the bullion market.
As of the end of last week, the implied probabilities for a December hike are at 70%; the chances for a March 2016 rate hike are 85% — unchanged from the end of the previous week.
By the end of previous week, gold holding of the gold ETF SPDR Gold Trust (GLD) declined again by 1.1% to 661.94 tons of gold, week on week. Conversely, silver holdings for the silver ETF iShares Silver Trust (SLV) rose by 0.5% to 315.11 million ounces.
The bearish market sentiment is likely to continue for precious metals as the USD keeps rising against major currencies and bond yields keep slowly climbing. The recent tragic news from France may raise the anxiety levels in the financial markets, which may provide a short term boost for gold and silver, but overall bullion prices are likely to keep slowly descending — especially if the upcoming minutes of the last FOMC meeting is perceived hawkish and the core CPI remains close to the Fed’s target of 2%.
For further reading see:
- Financial Market Preview for November 16-20
- Trading The Euro Printing Machine — MM#75
- U.S. GDP – Only a 1.5% Gain in Q3
- Will The Fed Do the Old Switcheroo?
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