The bullion market was also affected by the Greek debt drama as it shook up the financial markets. Despite the recent rise in volatility, the prices of both gold and silver only slightly decline on a weekly scale. Even the recent fall in China’s stock market, while rose the uncertainty around the progress of China’s economy has left much gold and silver prices low for long. The Greek saga will continue to lead the market news cycle – the latest news is that EU finance ministers are trying to find a solution to keep Greece in the EU, albeit a potential Grexit for 5 years is also considered.
Besides the Greek debt crisis, in the U.S. the CPI, consumer sentiment, Philly Fed survey, housing starts, PPI, and industrial production are the main reports that will be released this week. FOMC Chair Yellen will testify before Congress and Senate on the Fed’s monetary policy. In Europe, we have the ECB rate decision. The decision is less important relative to the press conference, in which Draghi is expected to be grilled about his stands on the Greek debt crisis. China’s GDP for Q2 will also be released this week and could shed some light about its economic progress.
As of the end of last week, the implied probabilities in the bonds market slightly picked up: The probability of a rate hike in September inched up to 14% and for December — 50%. They are still well below the levels recorded a few weeks ago.
The minutes of the last FOMC meeting and Yellen’s speech offered, yet again, another reiteration of the same message – rate hike is coming this year; it will be a data depended decision; it will a gradual raise. One possible scenario is for the FOMC to raise rates in September and then keep them unchanged for the remainder of the year. This will only have an impact on market expectations rather than the actual short term interest rates. So even in this scenario, the decision could have an adverse but not too strong impact on gold and silver prices. Yellen’s testimony is likely to present yet again no guidance about the next rate hike. In any case, any deviation from the normal script could be enough to shake the precious metals market.
By the end of last week, gold holdings in the GLD ETF declined again by 0.25% to 707.58; The ETF’s gold holding are down by only 0.66% for the year, year-to-date.
Final note
The recent fall in gold and silver isn’t enough to consider a downward trend – mainly since their respective prices are still in the same range they have been trading in for the couple of years. When it comes to Greece, it could play an indirect role on the FOMC’s policy by making it harder for the Fed to raise rates if Greece were to exit the EU – a move that could raise the economic uncertainty in the financial markets. In the meantime, if the U.S. economic reports were to show further progress they could slightly push up the odds of a rate hike, which won’t play in favor for gold and silver.
For further reading see: