With the two-day meeting of the Fed Open Market Committee (FOMC) kicking off on Tuesday, there was no particularly strong impetus for the precious metals to move very dramatically. Spot gold opened the morning down $5 per ounce at $1,261/oz. The Platinum Group Metals (PGMs) each lost over 1.5% while spot silver tumbled 20¢ (-1.15%) to $16.75/oz.
Waiting on the Fed
Several analysts have noted that the broader markets, especially gold and the U.S. dollar, are lacking direction at the moment. Most investors are waiting to see what decision the Federal Reserve makes on interest rates tomorrow before making any large-scale moves with their portfolios. According to the FedWatch tool from the CME, the markets are putting a 95.8% probability of a rate hike taking place this week. However, there are no shortage of surprises from the central bank. In addition to gradually raising interest rates, the Fed is also beginning to unwind its bloated balance sheet of securities and other assets.
In one of the strange coincidences that accompanies the beginning of a rate-hike cycle, the outlook for the economy as well as the gold price seem to be improving at the same time, even as the yellow metal has reversed its climb toward $1,300/oz. The positive signs come in the form of inflation: in the U.K., inflation just registered at a four-month high. As measured by the consumer price index (CPI), inflation in Great Britain clocked at 2.9% last month. The pound sterling rebounded modestly from its post-election plunge, sending the dollar slightly lower. Meanwhile, inflation has also jumped in the U.S., although less so in the case of producer prices, which were flat in May thanks to falling energy prices.
Despite rising expectations (and data on the ground) for greater inflation, the oil market continues to be saddled with a glut in output that has put a lid on any sustained upward price movement. This is despite the concerted effort by OPEC to curb their oil production and thus support higher prices. The cartel recently agreed to extend its production limits to at least March 2018. From a technical standpoint, the Brent crude price fell below the “Death Cross” indicator. As the name implies, this is often taken as a sign that a steeper downturn is in the offing because oil has slipped below a key price trend line.
After the Fed wraps up its meeting tomorrow, it will be followed by the Bank of England, the Swiss National Bank, and the Bank of Japan this week.
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.