Precious metals resumed their downward trend last week, while the USD and U.S equities rallied. Nonetheless, gold price is still up by 1.8% during August, up to date, but silver is down 4.3%. This week, the minutes of the FOMC meeting to be released on Wednesday and the Jackson Hole Economic Symposium on Thursday and Friday could provide some volatility in the markets. Several economic reports will also come out this week including CPI, housing figures and Philly fed index from the U.S, BOE rate decision and CPI from Great Britain, Japan’s trade balance, China’s manufacturing PMI, and retail sales and CPI from Canada. So let’s break down the economic calendar for the week of August 18th to 22nd.
This week, the main U.S related report will be the release of the minutes of the last FOMC. In the past meeting, the decision followed with a drop in bullion prices. The tone of the press release of the past few meeting seem to shift from dovish to hawkish resulting in a zigzag in the bullion markets following the releases. Perhaps the minutes of the FOMC will release some more hawkish tone, which could bring further down precious metals prices.
In any case, all eyes are headed towards the FOMC meeting in September, which will also have a press conference and could be the one, in which FOMC chair Yellen offers some more information regarding the next rate hike. The current estimates range mostly between the end of the first quarter of 2015 and the end of the second quarter.
The market also seem to estimate, based on the pricing of short term bond rates, further down the road additional rate hikes at a rate of 25pp nearly every Fed meeting, so that the cash rate could reach close to close to 1% by the end of 2015.
These estimates are likely to vary a lot over the coming months and until then, the first rate hike will likely to have a strongest impact on the markets- such a shift isn’t likely to do well for bullion and bring down their prices even further.
Other U.S reports include CPI, existing home sales, housing starts, building permits, and Philly fed index; they are likely to have little impact on bullion prices.
The CPI is a key indication for the progress of the U.S inflation. In the past report, the core CPI reached 1.9% (annually), which is very close to the Fed’s target inflation. If this report shows the core CPI continues to pick up; the rise in inflation could pull up the demand for gold investments, but could also improve the chances of the FOMC raising the cash rate sooner rather than later; the Fed’s decision to raise its cash rate is likely to have a negative impact on bullion prices.
In the meantime, the demand for gold as an investment seems to fall as the amount of gold in the GLD ETF, which is the world’s largest gold ETF has slipped in the past week. The current gold holdings are at 795.597 tons by the end of last week – nearly 0.78% fall since the beginning of the month. This fall suggests the demand for the yellow metal as an investment has diminished.
During last week, the US dollar slightly rallied against the Euro and Yen. If the USD continues to slowly pick up, this turn of events could also pressure down gold and silver.
Takeaway
The recent weakness in the bullion market is likely to keep coming down at a slow pace, especially if the upcoming minutes of the FOMC meeting will present a hawkish tone.
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