Gold and Silver Report for June 26-30

The bullion market has cooled down in the past week as gold and silver prices moved sideways without a clear trend. The market is still trying to figure out how hawkish will the Fed actually be considering the recent economic data showed slowdown on inflation. As people become more skeptical about the Fed’s ability to push rates higher, bullion is likely to slowly make a comeback.

This week Chair Yellen will give a talk at the British Academy ‘President’s Lecture’, in London. Although it’s not likely that she will answer any direct questions about the Fed’s policy, she may refer to the growing debate of raising the Fed’s inflation target from 2% to 2.5% — something she implied she’s open to discuss at the Fed in the last press conference following the FOMC policy meeting. Even if that debate were to start, I doubt it will materialize to a policy change anytime soon. But the market is looking for signs that perhaps the recent hawkish tone coming from the Fed may shift given the weak data we have seen in recent weeks. And this week the last estimate of the GDP for Q1 will be released. The expectations are for no major change and the growth rate to remain at 1.2%. Any downward revisions could contribute to the growing, albeit very slowly, bearish sentiment in the markets. The same goes for consumer sentiment, which is also out on Tuesday.

Considering there aren’t too many big economic data coming out this week, the focus will remain on politics and the general sentiment in the market. On both counts, the bonds market has suggested the market doesn’t expect higher inflation or rise in fiscal stimulus, which is why the 10 year notes are falling to year lows. For gold and silver as interest rates continue to decline, this also helps boost the demand for bullion.

But for gold and silver to shift towards a new upward trend would require more signs of economic slowdown and more feet dragging by U.S. policy makers when it comes to fiscal stimulus. These two issues alone could keep pushing down long term interest rates and drive up the demand for precious metals in the short run.

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