Precious metals began the week in much the same way they had spent the previous few weeks—losing value. Before long, however, what was looking like another 5-day trading session marred by losses quickly turned into one boasting somewhat impressive gains. Unless you have been willfully ignoring headlines, you know that this week was a big deal for no other reason than the fact that it featured the FOMC’s most recent meeting.
There were other pieces of economic data and geopolitical happenings to speak of, but none of them received the attention the FOMC meeting did.
Before this week ever got underway, there was no doubt that the most important event would come in the form of the latest FOMC meeting. Though this was not the case a few weeks ago, we entered this 5-day trading session with a large majority of investors convinced that an interest rate hike announcement—the first of 2017—would be made. The thoughts regarding a rate hike have transitioned a lot over the past month, but for the past two weeks investors the world over have slowly but surely been coming to terms with the high probability that a rate hike announcement would be made by the conclusion of this week’s 2-day meeting. Being that the rate hike was more or less expected by most, the announcement had already been priced into the market. In other words, the losses we would expect to see gold and silver incur in the wake of a surprise announcement were incurred before the announcement was ever made.
As expected, the Federal Reserve did, in fact, move to hike rates by 25 basis points. This brought the new funds rate to a range of .75%-1%. In the immediate wake of this being announced, some investors were shocked to see that precious metals began aggressively gaining back a lot of the value lost over the past few weeks. Perhaps even more surprising was the fact that those gains were able to extend through to the end of the week.
The reason for precious metals’ resurgence at the end of the week has less to do with the rate hike, and more to do with the tone of the Fed. In light of recently upbeat economic data and a slew of other factors, the investing public was not only anticipating a rate hike, but were also anticipating the Fed to be particularly hawkish as it relates to further rate hikes later in the year. Expecting that perhaps the Fed would raise rates another 4 or 5 times, investors were surprised when the post-meeting statement was quite subdued. For this reason, bargain-hunting in the physical precious metals market started almost as soon as the FOMC meeting officially came to a conclusion. Since then, metals have been trending upward and have done well to reverse many of the losses incurred more or less from the day the calendars turned to March.
As we look ahead to the future, the main focus for investors will shift from economic data to geopolitical happenings. Action in Europe is beginning to heat up, and with elections in France only a little more than a month away, attention will be increasingly focused on the region. What’s more, investors here at home will continue to focus on just about anything relating to President Trump’s fiscal policy. We are still waiting to hear more information regarding spending and taxes, and the feeling amongst investors is that certain decisions cannot be made until more information from the White House is divulged.