On Wednesday morning, each of the precious metals were about 1% higher thanks primarily to a softer dollar. If the metals close in the green, this marks the fourth trading day out of five where they have advanced. There also continues to be evidence that the markets have largely factored in a rate hike—though any dovish developments would be supportive of gold.
The dollar sank 0.8% lower on Wednesday, settling around 97.7 on the DXY index. The euro and pound sterling gained against the dollar, though the drop for the USD would have been worse if the yen and yuan hadn't given up ground. A weaker dollar is always a positive sign for the precious metals, and this was evident in morning trading. Spot gold hovered above the $1,082/oz mark while silver and platinum each were more than 1% higher. Palladium added $5 to $555/oz.
While the precious metal markets will no doubt keep an eye out for any dovish indications in the week leading up to the next FOMC meeting (December 16th, the committee's last meeting of the calendar year). Moreover, if the Fed stakes out a more dovish position in the aftermath of next week's expected rate hike (such as holding off on subsequent rate increases and keeping each rate hike shallow), this would likely signal a positive beginning to 2016 for gold.
Much has been made about whether or not the rate hike is "price in" to current asset values and market prices at the moment. For the most part, they are indeed. However, pricing in is by its nature an inexact science and subject to error (which is why we speak of "corrections" when markets move unexpectedly). It's clear that an effort to price in the December rate hike was underway in the gold market when shorts on the metal began to pile up. In fact, the net short positions on gold have neared record-highs, while net long positions are at their lowest level in 14 years.
This piling into shorts has led to a bout of short-covering, fueling a rally for the metals.
Silver Demand in India
Some noise is being made about India's silver import dropping to a 4-month low in November, but the bigger picture is still favorable: India's 6,600 metric tonnes (over 212 million troy ounces) of silver imports this year are up 7% year-on-year and have actually surpassed last year's total with 3 weeks remaining in the calendar. Continued restrictions on gold in India have spurred demand for silver as an alternative, whether for investment, jewelry, or silverware.
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.