The precious metals woke up to some buying pressure on Monday morning before slipping back to where they started by 9:00 am EST. Sentiment around the markets appeared to be mixed as everyone awaits the two-day meeting of the Federal Reserve Open Market Committee (FOMC) on Tuesday and Wednesday.
Spot gold still traded flat by 10 am in New York, holding right at $1,205.50/oz. The yellow metal jumped higher in the early hours of the morning but ultimately fell back to unchanged. Spot silver moved 3¢ per ounce lower (-0.2%) to just below $17/oz. Platinum and palladium were mixed though only moved modestly.
Waiting for the Fed
Most predictions have placed a high probability on the Fed choosing to raise interest rates again this month after raising its federal funds rate in December for the first time in a year. Although it's been noted that gold performed reasonably well during the last rate-hike cycle from 2004 to 2006, most investors remain uncertain about how higher interest rates will affect the broader markets.
Aside from the Fed, a number of central bank meetings and national elections will take place around the globe this week. This packed calendar of events is expected to keep markets rather subdued on Monday and Tuesday in what analysts call a "holding pattern": traders are more inclined to stand pat on any big positions rather than committing to one outcome or another. Such uncertainty and hesitance are favorable conditions for investors to diversify with precious metals.
Regarding the near-certainty of a rate hike from the Fed this week, there is an argument to be made that the Fed ought to pursue a more aggressive pace of interest-rate increases in order to bring real rates into closer agreement with the current economic picture. A return to a "normal" level of inflation and GDP growth, which the central bank increasingly seems assured of, would bolster the case for four rate hikes this year. However, with a limited number of meetings for the U.S. central bank to implement higher rates, one might even argue that a quarter-point increase is too gradual a pace. The Fed's inclination to avoid disrupting equity markets means it is unlikely to reconsider this side of the path toward normalization, however.
While still campaigning, candidate Trump had some harsh words for the Bureau of Labor Statistics (BLS) and how the U.S. government calculates employment statistics generally. Nonetheless, the president has touted the recent strength of economic reports from government agencies that have shown solid growth in job creation and wage increases during his first full month in office. If this trend holds to form, we might—might—see less combativeness between the White House and the Beltway establishment on economic issues. The hopes are that this would go a long way toward calming down international markets, as well.
Despite all of the rate-hike speculation and stronger inflation indications in the U.S., the bond market has yet to see an influx of significant safe-haven demand. 10-year Treasury yields are near their highest in a year at 2.59%.
Markets in Asia and Europe were higher across the board on Monday morning, although modestly so. One of the factors placing a drag on the global markets is the slump in crude oil prices. Oil prices tumbled to three-month lows overnight due to the swelling oversupply of U.S. crude. Energy prices, though volatile, have an outsized impact on inflation.
In the U.K., confusion surrounding how Britain's departure from the EU will play out is continuing to drive market activity. Prime Minister Theresa May could invoke Article 50 of the EU charter to trigger "Brexit" as soon as this week, though such an outcome is still unclear. Whether or not the process is a clean or messy one, Brexit in any form is likely to prompt another independence referendum in Scotland, where voters largely preferred remaining in the union. Such a development would break up the U.K., which has united England and Scotland for over three centuries. (By comparison, the EU has only united Europe for roughly two decades.) In other news, housing prices in the U.K. are rebounding after plunging along with the pound sterling following last summer's Brexit vote.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.