The Fed Back in the Spotlight
The Federal Reserve left interest rates on hold earlier this week following its July meeting. The Fed’s assessment of the economy was upgraded from the prior month, but not enough to warrant a rate hike or to strongly signal that one was coming at the September meeting. The Fed statement following their Federal Open Market Committee Meeting noted that “Near-term risks to the economic outlook have diminished.”
Despite the improved Fed economic outlook, traders put the odds of a rate hike in September at one in five and a rate hike by the end of the year at one in two. If the Fed pulls off a rate hike in 2016, it will be far fewer than two to four rate hikes they had projected earlier in the year.
Fed Talk and No Action impact on Gold, Silver and Currencies
Earlier in the year, equity markets crashed following the December 2015 rate hike and Fed pronouncements early in 2016 that it would raise rates four times during 2016. Gold and silver rose when equity markets plummeted earlier in the year and have risen all year. Stocks prices have swung wildly in 2016 but recovered from the large declines at the beginning of the year and from steep losses following the Brexit vote a month ago. The Fed’s inaction has sustained stock and precious metals prices all year.
Gold and Silver
Gold has consolidated its more than $200 an ounce gains in 2016 and has traded over $1300 an ounce since the end of June.
Year to Date Dollar Index, Oil and Gold Prices
Gold has not experienced a significant pull back in 2016, while oil’s rally sputtered in late July.
Silver has risen well over 40% in 2016 and has flirted with and held gains over $20 an ounce during July.
Year to Date Dollar Index, Oil and Silver Prices
Silver has been the top performing commodity of 2016.
The last week has not been kind to oil. The price of oil has touched below $42 a barrel on reports of building oil stockpiles and a potential oil glut.
The Dollar has fallen most of 2016, but has rebounded recently as “global economic uncertainty” coupled with a strong June jobs report and a slightly less dovish Fed, have boosted the Dollar Index* to over 97.
The British Pound has remained under pressure since the Brexit vote last month and recent data that showed UK retail sales have slowed and the Bank of England is considering further stimulus. The Pound remains mired at a multi-decade low near $1.30.
The Euro has stabilized as immediate concerns over the impact of Brexit and further member state Brexit style referendum have subsided
The Japanese Yen
The Yen rose most of 2016, but has fallen recently as the dollar strengthened and the Bank of Japan announced another stimulus program earlier this week in an amount over $250 billion.
Unless, July and August job reports are solid and/or Fed Presidents begin another round of Open Mouth Operations indicating that rate hikes are “on the table” in September, markets will assume that there won’t be a rate hike until the end of the year, if at all. This means that the focus will shift from the Fed to the U.S. Presidential election and the domestic uncertainty it entails.
Here are some economic reports that could impact gold, silver and currency movements next week :
Aug 1 Construction Spending Jun
Aug 1 ISM Index Jul
Aug 2 Personal Income Jun
Aug 2 Personal Spending Jun
Aug 2 PCE Prices Jun
Aug 2 Auto Sales Jul
Aug 2 Truck Sales Jul
Aug 3 MBA Mortgage Index 07/30
Aug 3 ADP Employment Change Jul
Aug 3 ISM Services Jul
Aug 3 Crude Inventories 07/30
Aug 4 Challenger Job Cuts Jul
Aug 4 Initial Claims 07/30
Aug 4 Continuing Claims 07/23
Aug 4 Factory Orders Jun
Aug 4 Natural Gas Inventories 07/30
Aug 5 Nonfarm Payrolls Jul
Aug 5 Nonfarm Priv. Payrolls Jul
Aug 5 Unemployment Rate Jul
Aug 5 Average Hourly Earnings Jul
Aug 5 Average Workweek Jul
Aug 5 Trade Balance Jun
Aug 5 Consumer Credit Jun
* The US Dollar Index tracks the US dollar vs. the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona and the Swiss Franc. The Euro comprises nearly 58% of the index.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.