10,9,8,7,6,5,4,3,2,1 ignition…..And we have lift-off! Well, almost anyway…
The big data point of the day today, and perhaps the most important piece of economic data for the week, has pointed to a rate hike next month.
The minutes from the latest FOMC meeting seem to indicate that the economy has reached a point at which a rate hike is warranted. While nothing new of any significance was expected from the release of the meeting minutes, this should put to rest any further deliberation on whether or not the Fed will hike rates next month.
Trading action in gold and silver has been sloppy around the release of the FOMC minutes and the markets still appear to be trying to find some solid ground.
Precious metals have been under pressure in recent weeks as the likelihood of an interest rate hike increased. The main question now may become: “Can the metals put together a sustainable rally now that lift-off is upon us?”
As has been stated previously, the Fed did seem to indicate that the pace of any further interest rate hikes was likely to be very slow and gradual. While this could potentially be considered bullish for silver and gold, investors may still need to get over the initial hike.
The Fed finds itself in interesting territory as it prepares to hike rates while China, the ECB and others continue to hold rates at very low levels or engage in various forms of stimulus in order to try to boost economic activity.
There may be some who even feel that the Fed could be raising rates only to lower them once again in the future. While the economy has shown further signs of rebounding, there is still a lot of work to be done and the economy could still, in our opinion, be considered fragile.
What remains to be seen is how stocks and other risk assets may react to the initial hike. Stocks have seen solid upside recently and have recovered from the losses seen in late August and September. The market may, however, not like higher rates (even though the initial rate increase is very minimal). This could potentially send stock investors running for the exits. Should a stock sell-off occur, some of that capital could potentially work its way into silver and precious metals.
For now, silver may be purchased by bargain hunters but is vulnerable to another leg lower in price. Should a fresh leg lower occur, it could potentially mark a longer-term bottom from which a base could potentially be built.