The bullion market took another beating last week as both gold and silver tumbled down mainly at the beginning of the week. Even the slightly dovish toned minutes of the FOMC meeting didn’t bring much up gold and silver. This week we can look forward to Yellen testifies in Congress, second estimate of GDP for Q4, China’s manufacturing PMI, U.S. existing, pending and new home sales, EU Monetary developments, U.S. durable goods, final EU CPI estimate, Draghi testifies, U.S. consumer confidence and UoM consumer sentiment. Here is a preview for February 23rd to 27th, 2015:
The minutes of the last FOMC meeting were a bit more on the dovish side, but the precious metals markets didn’t react much to this report and only slightly rally following the release. Gold and silver took another dive last week with gold shedding down 1.8% off its value and silver 5.9%.
Nonetheless, the implied probabilities, which are derived from the bond yields, didn’t change much and the odds given by the market for a July rate hike are 39% — a bit lower than last week but still up for the month. In total, long term yields have gone up in the past week, with the 10 year yields reaching 2.13 and 30 years 2.73. These levels are close to the levels recorded at the beginning of the year. If yields were to keep coming up, this could bring further down gold and silver.
Looking forward, FOMC Chair Yellen will testify on the Semiannual Monetary Policy Report before the Senate Banking Committee on Tuesday. Her words could move the markets especially after the release of the last minutes of the FOMC meeting. If the testimony were to be a bit more hawkish in light of the stronger NFP report, this testimony could bring further down gold and silver prices. In regards to the U.S. reports, the GDP for Q4 second estimate will be released and the CPI for last month. These reports could also move the U.S. dollar and precious metals. If the U.S. GDP comes higher than expected, this could be another positive indication for the progress of the U.S. economy, which may positively impact USD. A stronger USD could coincide with a weaker bullion market.
Speaking of testimonies, ECB President Draghi will also testify this week on the ECB Annual Report before the European Parliament. Considering the recent drama we had in Europe revolving the Greek debt crisis, this testimony could also provide some more input behind the latest EU developments.
For now, the Greek crisis seems to have been diverted. The Greeks still need to submit on Monday a list of reforms they will have to implement to the EU members for their approval. It seems that the Germans won this round with no cancelations of the major austerity measurements.
By the end of last week, gold holdings in the GLD ETF slightly rose to 771.249 tons – 0.39% gain, week over week; it’s also up by 8.3% for the year, up to date.
Takeaway
The ongoing rise in U.S. interest rates and the diffusion of the situation in Europe over the Greek exit have brought down gold and silver. If this week Yellen continues to voice a bit more hawkish tone about the next rate hike and the progress of the U.S. economy, this could pressure further down precious metals.
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