The FOMC decided, as expected, to keep rates unchanged this time, but left the door open for two rate hikes this year. But the FOMC also lowered its outlook for rate hikes in the coming years (as indicated from the revised dot plot. For gold and silver this news was enough to pull slightly up their prices last week. But the attention in the markets will shift to the Brexit vote this week that will have a strong impact in bullion prices. So let’s review the latest news from the Fed and see what’s up ahead for gold and silver for the week of June 20-24.
The Federal Reserve didn’t raise rates but the possibility of a rate hike in 2016 hasn’t changed, i.e. the dot plot still shows two rate hikes this year. Nonetheless, the market still interpreted these reports as slightly dovish as indicated in the implied probability of Fed-watch: For July, the chances of a rate hike are at 7% — down from 21% in a week back; for September the chance of a hike is 24% and for December the odds also slipped to 23%.
But when it comes to gold and silver, however, the reaction wasn’t too impressive as both precious metals only slightly picked up.
Source: Bloomberg, FOMC
With respect to the recent news from the Fed, this week Chair Yellen will testify at the Senate and House of Representatives; she is likely to refer again to the current state of the U.S. economy, what’s the revised outlook and any updates on the Fed’s monetary policy for now. Considering the market still places a very low chance of a rate hike this year, she may decide to be a bit more hawkish in her testimony, which could curb down a bit gold and silver prices’ rally. But with all due respect to the Fed’s policy and its impact on bullion prices, it seems that the market will be less focus on the Fed’s policy — the main event will be the results of the Brexit vote on June 23. As of the recent polls the race is still close with 44% for each camp. But there are still a high number of undecided – around 12%-14% — and they tend, according to conventional wisdom, to maintain the status quo. Also, the odds in betting sites give a 73% chance of Britain to remain in the EU again 27% of a Brexit. For precious metals a vote for Britain to remain could also reduce the uncertainty level in the markets, which could bring back down bullion prices.
But if the vote goes towards the Brexit campaign, which still seems less likely to occur, could result in a much stronger market reaction. And this is likely to result in a sharp rise in bullion prices.
ETFs holdings: By the end of last week, gold holdings of the gold ETF SPDR Gold Trust (GLD) increased again by 1.5%, week on week, to 907.88 tons of gold – the highest level since September 2013; silver holdings for the silver ETF iShares Silver Trust (SLV) declined by 0.9% to 337.3 million ounces.
Bottom line
The upcoming Brexit vote will lead the way all though this week. Every new poll will likely to move gold and silver prices until Friday, when the results become clear. Keep in mind that the market places less chance of a possible Brexit than what the polls currently show. This means the market reaction will be harsher in case of a vote for Brexit than for a Bremain; in other words: bullion prices’ percent change in absolute terms is likely to higher in case of a Brexit compared to a Bremain vote. So if the Brits do decide to exit the EU the immediate reaction for gold and silver is likely to be very favorable; otherwise bullion prices are expected to decline. In either way this week’s volatility is likely to pick up again.
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