Precious Metals Jump Ahead of FOMC

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Gold and silver up over 1.50 percent pre-U.S. session.

Christopher-LemieuxSMBullion.Directory precious metals analysis 16 December, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Twitter @Lemieux_26

Precious metals jump higher ahead of today’s FOMC minutes and potentially the first rate hike in the U.S. since 2007. Why? It’s most likely contributed to the fact that the majority of market participants believe Fed Chair Janet Yellen will remain extremely dovish post-rate increase.

A dovish hike may be a hard sell, as Nomura suggests, but precious metals may have already priced in a specific rate trajectory. The U.S. dollar carry trade is the most crowded trade and by significant margins, according to Bank of America Merrill Lynch Survey of Global Fund Managers.

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If Yellen choreographs a dovish hike, the dollar trade could begin to unwind causing relief in battered commodities; and gold and silver will benefit.

Gold has been trading in a range, and price action is forming a small, symmetrical triangle on the daily chart. The results of the FOMC, and surrounding rhetoric, will pave the way for the yellow metal. If there is a more hawkish tone, gold could trade lower to $1,035, while a more dovish tone may send gold to restest resistance at $1,194/97.

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Silver is a little tricky because it is more tied in with economic growth than monetary policy. The beaten down commodity will see relief if the dollar bulls take some off the table, but poor economic data may still be a hindered to silver. If inflation were to pick up, consider that bullish for silver.

If commodities can get a boost, expect silver to trade higher to $14.52 with the potential of $15.30 (highly dependent on the outcome of the dollar). Conversely, selling pressure could cause silver to test significant support levels at $13.12.

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