Precious metals didn’t perform well again last week as the markets are coming around to consider the Fed raising rates in December. The stronger dollar has also pressured down gold and silver. And the Brexit talks — including the concerns for a harder Brexit — are also pushing up the USD against the GBP. This week’s main events will include the ECB rate decision, and third and final U.S. presidential debate, U.S. CPI, China’s GDP for Q3, and U.S. industrial production. Let’s see what’s ahead for gold and silver for the week of October 17-21:
The markets are preparing for the Fed to raise rates this year. And although inflation remains stable, the minutes of the last FOMC meeting revealed that FOMC members are pushing towards a rate hike. For gold and silver, higher rates aren’t likely to benefit its investors considering this shift in policy could also raise the long term yield. As a quick side note, however, keep in mind that even though the Fed raised rates back in December of last year, LT yields kept falling in the following months.
And here below you can find the chart of market outlook about the chances of hike in December 2016 and the progress of gold prices.
Source: Bloomberg
As of the end of last week, the implied probability of a rate hike in November remained unchanged at 8.3%; and for December the odds rose to 69.5%.
This week the ECB rate decision will be the main event of the week. The ECB isn’t expected to introduce of any new policy and the rumors were that the ECB may consider tapering its QE program sooner than expected. For now, forecasters expect the ECB to announce of the extension of QE by the December meeting. Nonetheless, any hints by Draghi for a possible taper could result in a stronger Euro, which may also push down bullion prices.
In the U.S. the CPI for September will come out. If the report shows a pickup in inflation, this could raise the chances of a rate hike by the Fed, which again isn’t likely to push up gold and silver.
ETFs holdings: By the end of the previous week, gold holdings of the gold ETF SPDR Gold Trust (GLD) increased again by 0.68%, week on week, to 965.43 tons of gold; silver holdings for the silver ETF iShares Silver Trust (SLV) rose by 0.6% to 362.285 million ounces.
Bottom line…
The bullion market has taken another beating as the USD gains momentum and the chances of a Fed rate hike remain elevated at around 70% — the highest level since May; and even though the Fed is moving towards raising rates, Yellen, in a recent speech, has also pointed out that the Fed is willing to tolerate higher inflation, which could suggest 2017 won’t see many rate hikes. So as long as the USD gains more strength and yields recover, gold and silver are likely to be held back in the short run.
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