Precious metals pulled back a little bit further on Friday to solidify a losing week. When all was said and done, gold backtracked by about 2 dollars while silver ended up dropping about ten cents. Platinum and palladium both lost on the day, with both metals conceding little more than ten dollars.
Bullard Backs December Rate Hike
St. Louis Federal Reserve president James Bullard, speaking in Germany today, seemed to be completely behind the move to raise interest rates in the US in December. In a part of his statement, Bullard said, “Markets are currently putting a high probability on a December move by the FOMC. I’m leaning toward supporting that. I think the question now is more about 2017.”
What Bullard is talking about is what happens once Donald Trump actually assumes the Presidential office. Historically, conservatives have been huge proponents of keeping interest rates low.
As such, there is a lot of uncertainty surrounding rate hikes beyond December. Basically, if rates are hiked in December, the wider plan is to continue gradually hiking them as the months progress. Of course, now that the government is controlled by Republicans, there is no surefire way of saying additional interest rate hikes will, in fact, come to fruition.
As for the anticipated December hike, there is now a 90% probability that the conclusion of the mid-December FOMC meeting will yield the announcement of a rate hike. This is a better probability than we have ever seen before during this whole interest rate debacle. For precious metals, the high likelihood that rates will be raised is something that is actively keeping spot values subdued. For the next month you can bet that there will continue to be a lot of speculation with regard to what will happen come the conclusion of the FOMC meeting, but for now most everyone is expecting rates to be raised in some capacity.
Dollar Hits 14 Year High
Precious metals’ inability to move forward can be explained by looking no further than at the progress of the US Dollar over the past 2 weeks or so. On Friday, the USD pushed itself upward to a 14-year high against a basket of rival currencies. What’s more, the greenback has put on its most impressive 2-week display against the Japanese Yen since 1998.
A major contributing factor to the Dollar’s success is the fact that an increasing number of people feel as though Donald Trump’s policies will result in higher consumer prices. While at first there was a good bit of skepticism with regard to whether Trump would follow through with many of his promises, there is now a growing number of people who think that the president-elect will at least attempt to follow through on the many promises he made throughout his campaign.
With large corporate tax cuts on the horizon, there is a growing feeling that foreign investment in the US will increase dramatically over the coming years. There are many other policies and plans that Trump has laid out, and the holistic view of all of them is causing investors to believe that the greenback, at least for now, is going to be moving forward at just about every turn. So long as this is the case, however, gold and silver spot values are going to find it difficult to make anything in the way of sustained, lasting gains.
It goes without saying that the expectation for next week will be continued speculation with regard to what Trump might do when he finally takes office. As the president-elect sorts out his cabinet positions and all that comes with that, investors will react accordingly. Right now, the prevailing belief is that Trump will do his best to stick to promises made over the course of the past year and a half.