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Will the Fed Determine Gold and Silver Prices in 2016?

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March policy-setting meeting

The FOMC (Federal Open Market Committee) is expected to raise the key interest rate in its next policy-setting meeting in March 2016. However, after the first rate hike (of 0.25%) in almost a decade during the December 2015 meeting and the subsequent global equity market collapse, policymakers may be rethinking another rate hike. Instead of the four anticipated rate hikes this year, the FOMC may have to limit the rate hikes to two or even resort to quantitative easing.

 

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The weak economic indicators observed since the start of the new year are also weighing on the economy and negatively impacting the Fed’s sentiment regarding further rate hikes. The Fed played a crucial role in determining the prices of precious metals in 2015. However, so far this year, the unrest in the Chinese market and the tension in the Middle East have been more influential in moving the precious yellow metal.

What’s next for gold and silver?

Gold and silver have risen by 3.8% and 2.1%, respectively, since the start of the year, and platinum and palladium have fallen by 8% and 10.6%, respectively. Market sentiment has been the core determinant in moving the above metals, and the Fed likely had no role. The stock market’s weakness has increased the demand for gold and silver.

If the economic outlook does not improve substantially for the rest of the year, gold and silver may keep advancing as safe-haven investments despite the Federal Reserve’s policy decisions.

The ups and downs in the market have likely scared off gold and silver miners. Pan American Silver Corporation (PAAS), Hecla Mining Company (HL), and Kinross Gold Corporation (KGC) have fallen by 11.7%, 21.6%, and 20%, respectively, during the last month. Among mining-based ETFs, the Global X Silver Miners ETF (SIL) and SPDR S&P Metals and Mining ETF (XME) have fallen by 16.2% and 18.5%, respectively, over the past month.

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