Market Overview: Both gold and silver are slightly lower in relatively quiet action this morning. The metals have help up well in recent trade despite higher stocks and the increasing of further interest rate hikes. The metals have likely seen buying interest on an underlying degree of risk aversion in the marketplace surrounding the Trump administration’s policies and uncertainty surrounding the European Union.
Key Data Points: The latest reading on MBA Mortgage Applications today showed a drop in both new home applications as well as refinancing activity. The rise in mortgage rates may be taking a toll on activity, and a further rise in rates may slow activity even further.
The data highlight of the day will be the release of the latest FOMC meeting minutes due out this afternoon. With economic data pointing to increasing inflationary pressures and with much of the data showing strength in the economy, the Fed could potentially be motivated to start raising rates sooner than expected, and perhaps at a faster pace than previously thought.
Although investors have been largely anticipating the next rate hike to come in June, a March hike now appears to be very much on the table, even if still unlikely. Investors will be closely scrutinizing the FOMC minutes for any clues as to the potential timing of the next rate hike and the central bank’s assessment of economic activity. A more hawkish-sounding Fed could potentially boost the dollar and weigh on stocks while a more dovish-sounding Fed could potentially boost gold and silver and fuel further buying in stock markets.
Outside Markets: Markets are largely flat today as investors await the FOMC minutes. Stocks are slightly lower while the dollar index is slightly higher. Interest rates are flat.
The Big Picture: The Fed minutes could potentially have a large influence over trade in several key markets including stocks, metals, interest rates and currencies. Stocks are riding high right now on the notion of tax reform and fiscal spending, however, a faster rise in interest rates from the Fed could potentially be a drag on further stock upside.
Rising inflationary pressures and geopolitical issues could potentially keep a floor under gold and silver prices, and if equity markets begin to show signs of reversing, interest in the metals complex could increase further. Investors will be watching the EU elections very closely in addition to ongoing implementation of Trump’s economic policies in the U.S. The elections could change the EU as we know it today, and could potentially fuel risk aversion. In addition, if the Trump administration is not able to deliver on key issues such as tax reforms and fiscal spending, investors may shy away from stocks and seek out alternatives asset classes.