Althea Spinozzi
Global Sales Trader Althea Spinozzi, a specialist in fixed income, takes a closer look at the bonds market following the FOMC’s decision to hike interest rates.
Article / 16 September 2016 at 13:30 GMT

Precious metals on defensive ahead of busy central bank week

Head of Commodity Strategy / Saxo Bank
  • There is only a 20% chance that the Fed will hike rates next week 
  • But markets still worry that Janet Yellen and her FOMC members may act
  • Despite a sharp correction, silver is still up by 38% for the year-to-date
  • Gold is up 25% for the same period, which explains why bulls like silver
By Ole Hansen

Precious metals have been back on the defensive this past week with the shake-out in both bonds and stocks hurting the general level of the appetite for risk in the market. Next week's central bank meetings from the Federal Reserve and Bank of Japan should provide the market with some additional guidance and direction.

The US yield curve has steepened to its widest in 10 weeks on a combination of rising rate expectations and a general risk reduction driven by the latest spike in volatility. This has driven US 10-year real yields back up to a pre-Brexit high of 0.20%.

 Heating up ... gold has made strong gains this year, and traders in the precious metal are looking to the Fed for direction. Photo: iStock

The negative impact of rising bond yields have prevented gold from reacting to the tailwind from a weaker dollar.

Gold and the US dollar and bonds

Gold drivers

Source: Bloomberg, Saxo Bank. Create your own charts with SaxoTrader; click here to learn more. 

This development can best be seen through gold priced in euros.

The combination of gold trading lower and the dollar trading weaker against the euro has taken XAUEUR back down towards key support at €1,170/oz. A break below could signal an extension lower towards €1,153/oz, which could add some additional pressure to XAUUSD currently trading relatively quietly.

Gold priced in euros under pressure from its inability to find support from a weaker dollar

Source: Saxo Bank

While the risk of a rate hike next week from the Federal Open Market Committee stands at just 20%, the market has maintained a lingering worry that Janet Yellen and her fellow members of the FOMC may opt to strike. Several hawkish, but also one dovish, comments from Federal Reserve officials over the past week has left some members boxed in with another "no change" outcome potentially raising some credibility issues. 

The gold market no matter what will be looking for direction, having failed on several occasions to break the range having been established following the Brexit rally on June 24. 

Boxed in: Gold is trading between $1,300/oz and $1,350/oz.
Spot Gold
Source: Saxo Bank 

Silver has for the second time this year been through a correction extending by more than 10%. This is more than double the latest percentage drop in gold.

The white metal is nevertheless still up by 38% year-to-date compared with gold's 25% rise. That goes to show why bulls like silver. When gold walks, silver runs. Silver may be painful through corrections, but it's great when metals rally.

Why bulls like silver
Spot Silver
 Source: Saxo Bank

– Edited by Robert Ryan

Ole Hansen is the head of commodity trading at Saxo Bank.

marcolic marcolic
This comment has been redacted
Relevant articles for you


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail