Sprott Precious Metals Watch, March 2017 - Trey Reik
Tuesday, March 28, 2017 at 06:29PM
Gold Prices

Trey Reik, Senior Portfolio Manager

Precious metals resumed their upward climb during the first two months of 2017. During January and February, spot gold rose 8.34% (from $1,152.27 to $1,248.33) and spot silver increased 15.08% (from $15.92 to $18.32). During early March, however, precious metals suddenly reversed course, with spot gold declining 2.30% and spot silver declining 5.29% through respective March 15 closes of $1,219.68 and $17.35.

Without question, the greatest variable affecting precious-metal performance during recent weeks has been market handicapping of the Fed’s March 15 FOMC meeting. On 2/22/17, Bloomberg consensus expectations for a rate hike at the March meeting measured 34%. Ten trading days later (3/8/17), this percentage had swelled to 100%

We attribute this swift shift largely to a short stretch of particularly impassioned Fed jawboning, book-ended by the FOMC’s two crucial thought-leaders, Vice Chairman William Dudley and Chair Janet Yellen. On 2/28/17, Mr. Dudley commented, “I think the case for monetary policy tightening has become a lot more compelling,” but then raised eyebrows with uncharacteristic frankness about U.S. asset prices: “There’s no question that animal spirits have been unleashed a bit, post the election. The stock market is up a lot.” By 3/3/17, Chair Yellen sealed the deal for a 3/15 hike in a speech to the Executives’ Club of Chicago, in which she remarked, “Indeed, at our meeting later this month…a further adjustment of the federal funds rate would likely be appropriate.” As avid students of Fed communication, we find the Fed’s tone change since 2/28/17 nothing less than abrupt. What factors account for this sudden shift to urgency following years of trademark caution? Might the Fed be reacting to strengthening economic data?

While “soft” economic data...

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