Silver prices started off last week’s trading on a strong note and the advance extended into Thursday, bolstered by Wednesday’s announcement that the Federal Reserve was leaving the target range for the federal funds rate unchanged at 0.25% to 0.5%. The contract for December silver settlement established a high for the week at $20.145 on Thursday, then came under some selling pressure on Friday, to close the session at $19.810. From the prior Friday, silver prices up just over 5%, outperforming gold, which gained 2.4% for the week.
The vote by the Federal Open Market Committee was seven to three, with seven voting in favor of the policy inaction. The three dissenting votes may be considered an indication that precious metals will continue to experience volatility in reaction to comments from Federal Reserve officials in the weeks ahead of the December 13-14 FOMC meeting.
And, the coming week’s calendar is heavy with Fed speakers. FOMC Member Daniel Tarullo is scheduled to speak on Monday. FOMC Member Stanley Fischer will speak on Tuesday. FOMC Members Bullard and George will speak on Wednesday and FOMC Member Powell will speak on Thursday. Chicago Fed President Evans and Atlanta Fed President Lockhart are also expected to speak next week. Topping the list, however, is Federal Reserve Chair, Janet Yellen. She testifies before the House Financial Services Committee on regulation and supervision Wednesday at 10:00AM ET. Then on Thursday, Yellen is due to speak via video conference at the Minority Bankers Forum in Kansas City at 4:00PM ET. Her comments will be monitored closely for any further insights into monetary policy, as will comments from other Fed officials. At present, Fed Funds futures are indicating a 54% chance of a rate hike at the December meeting.
At present, the bias in silver prices is to the upside, as new buying appeared to be behind last week’s advance in prices, as open interest increased nearly 6% Monday through Thursday. Typically, rallies accompanied by falling open interest imply short-covering was the driving force behind the move, a factor that typically leaves the advance highly susceptible to retracement. Large speculators upped their net long holdings of silver contracts by a modest amount to 82,635 ahead of the FOMC announcement, according to the latest Commitment of Traders (COT) Report. This was up from 81,568 contracts as of the September 13 close. The next COT Report is due out Friday, with positioning as of the September 27th close.
On the upside, last week’s high was in the vicinity of resistance at the early Sept. corrective top at $20.235. A breakout above this level would also result in a move above the falling trendline off the rally highs established in recent months. Both developments would imply a follow through to the 2016 highs is the next move on tap for silver prices.
On the downside, near term support in silver prices is at the 50-day moving average at $19.665, which corresponds to Friday’s intraday low. Second support, derived from the hourly chart, is at the $19.375 level, which is just below a 50% retracement of last week’s advance.
In addition to the high activity by Federal Reserve officials next week, the U.S. economic calendar is full. New Home Sales are set for release Monday at 10am ET, Consumer Confidence is due at 10am ET on Tuesday, and Durable Orders at 8:30am ET Wednesday. On Thursday at 8:30am ET, Q2 GDP third estimate will be released followed by Pending Home Sales at 10am ET. Personal/Income Spending and Core PCE Prices are due at 8:30am ET Friday, while at 10am ET Chicago PMA will be released. On Monday evening, the first U.S. Presidential Debate will take place, another potential source of volatility for the financial markets.
The possibility of victory for Donald Trump and a second US interest rate hike could cause increased volatility in gold markets in Q4, according to Citigroup.
Bloomberg reports Citigroup has raised Trump’s odds of winning the US presidential election from 35% to 40%.
Combined with the likelihood of another interest rate rise in Q4, this situation could lead to a bumpy ride for bullion and foreign exchange markets during the rest of the year.
Gold bullion prices have increased by 26% this year, with gold funds such as Junior Gold and Way Charteris Gold and Precious Metals among the top performers since Brexit.
However, the metal began to give up gains during August, retreating from a high of $1,360/oz to $1,309/oz.
The current gold spot price is $1,334 and Citigroup forecasts spot gold futures could be $1,350 on a three-month basis and $1,270 on a six- to 12-month view.
Under the bank’s base case gold prices may be at $1,320 in the final quarter, or as high as $1,425 under its bull case, which includes the possibility of a Trump win.
In the report, the bank said: “Polls have started to tighten ahead of the US presidential election, and Citi has raised the probability of a Trump victory.
“We expect a Trump win would bring out higher volatility in gold and forex, which in turn should lead to higher volumes in other precious metals.
However, despite Trump’s popularity, rival Hillary Clinton leads the polls on a national basis by an average of 2.5%.
The candidates will square up tonight for the first presidential debate; forecast to be one of the most-watched television events in US history.
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