The rally of gold and silver reached an impasse following the recent recovery in equities and the U.S. dollar against the Euro, Aussie dollar and British Pound. Nonetheless, the bearish market sentiment is still looming and could initiate selloffs if the bearish market sentiment – driven by concerns over a possible economic slowdown – comes back. The latest minutes of the FOMC meeting didn’t offer anything new and the implied probability of a rate hike this year remain low. This week’s main reports include: U.S. PCE, core durable goods, EU CPI, German manufacturing PMI, U.S. GDP for Q4, consumer sentiment, GB GDP for Q4, and U.S. existing home sales. Here is a breakdown for gold and silver for the week of February 22-26:
The minutes of the last FOMC meeting relied the same basic sentiment the market has already priced in following the last meeting statement and Yellen’s testimony: Most likely no rate hike next month; the FOMC members are concerned a bit befuddled as to why the markets are so edgy even though the economic data, at least coming from the U.S., aren’t so dire. In any case, according to Fed-watch, the implied probability for a March rate is slightly down to 2%; for June the odds of a hike is 18%. And for the December meeting, the market estimates the chances of a Fed cash rate is now 38% — slightly higher than last week but still very low.
This week, the main reports in the U.S. include core durable goods, consumer confidence, core PCE and GDP for Q4 – second revision. The market will pay close attention to the core PCE and GDP. The first estimate of the GDP was only 0.7%, which was a bit lower than anticipated. This time, however, the markets project a growth rate of 0.5% — any lower and it could further raise the anxiety level in the markets, which tends to behoove gold and silver. The core PCE is important for the Fed to determine the rate of inflation. Last time the core PCE stood on an annual rate of 1.4% — still well below the 2% target. Any lower rate and it could signal the markets that the Fed will be less incline to raise rates at all this year and raise the concerns of possible economic slowdown – in either way this could also boost gold and silver. Conversely, higher than expected results for GDP and PCE could calm markets, pull up the USD and equities – which will curtail the recovery of precious metals.
ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) rose for the seventh straight week, this time by 3.1%, week on week, to 732.96 tons of gold –up by 14.1% year to date; silver holdings for the silver ETF iShares Silver Trust (SLV) slipped by 0.4% to 310.9 million ounces.
In conclusion…
Precious metals took a pause in their recovery as equities regained some strength and the U.S. dollar rallied. This could all change if the upcoming U.S. reports show lower than expected results or if the concerns over China will take center stage again.
For further reading see: