Gold and silver resumed their recovery again, while the U.S. dollar sell offs against leading currencies took place. This week, however, the highly anticipated FOMC meeting could stir up the bullion market again and perhaps even change its direction. This week the U.S. economy will be in the news again after last week’s TLTRO of ECB took center stage. Besides the FOMC meeting, other reports and events include: U.S. CPI, Japan’s elections, U.S. industrial production, China’s manufacturing PMI, U.S. housing starts, and German economic sentiment. Here is the economic outlook for December 15th to 19th:
The main event of the week will be the upcoming FOMC meeting, which will include a press conference and economic outlook update.
In the past year the market’s reaction to the FOMC’s meeting tended to be negative mostly because the FOMC turned hawkish.
This time there is no tapering of QE3 program so the main issue will be the decision about the Fed’s rate, specifically whether the FOMC will omit the term “considerable time” from its statement.
The FOMC is likely to refer to the recent positive NFP reports and the slow rise in U.S. inflation. The changes in Europe, Japan and China are also likely to surface.
If the FOMC takes this term out of the statement, this could be another point in favor of raising rates in the coming months, which could bring further down gold and silver. My guess is that the FOMC will change the wording of its statement and retire this term. But we will find out on Wednesday.
Besides this event in the U.S. the CPI, housing starts and industrial production reports will be released. They could provide additional information regarding the progress of the U.S. economy.
In China, the flash manufacturing PMI will be released. This is forward looking report and could indicate the impact of the last rate hike by PBOC. This report could provide a secondary impact on gold and silver prices.
The recent fall in the U.S. dollar provided some backwind for gold and silver, but this could all change if U.S. dollar bounces back next week. Last week, U.S. dollar depreciated against the Euro, yen and Aussie dollar by 1.5%, 2.2% and 1.2%, respectively.
Gold holdings in the GLD ETF rose again to 725.748 tons by the end of last week – a 0.67% increase; it’s still 6% lower than its levels recorded at end of September.
Takeaway
The gold and silver markets are likely to see another stormy week, but this time if the FOMC shows another hawkish stand. My guess is that the FOMC will make a modest change to its statement that will be enough to persuade the market that a rate hike is right around the corner. In such a case, this could erase precious metals’ recent recovery and bring them down again.
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