(Kitco News) – Gold and silver head into the coming week with investors focused on the health of the U.S. economy and the Federal Reserve's interest-rate outlook, as manufacturing, housing and central bank signals could drive volatility across precious metals markets.
Bullion prices gained ground this week as softer U.S. inflation and consumer spending data reduced expectations for another Federal Reserve rate hike, with gold reaching its highest level since June 5, while silver was trading above $64 an ounce on Friday. Markets were pricing roughly a 31% chance of a September rate hike, down from around 55% a week earlier.
The coming week's data will offer another look at U.S. manufacturing and housing activity, while Wednesday's FOMC minutes could provide the clearest indication of how policymakers are weighing persistent inflation against signs of slowing economic growth.
The week begins Monday with the New York Empire State Manufacturing Index. Regional factory surveys have attracted greater attention as investors look for evidence that higher borrowing costs and weaker demand are beginning to weigh more heavily on the industrial economy.
On Tuesday, investors will turn their attention to Housing Starts and Building Permits, followed by Pending Home Sales.
Housing remains one of the most interest-rate-sensitive parts of the economy, making the reports useful measures of how restrictive monetary policy is affecting households and construction. Continued weakness could strengthen expectations that the Fed will remain on hold, while signs of improving activity could reinforce the view that the economy remains resilient despite elevated borrowing costs.
The week’s main event will likely be the Wednesday afternoon release of the FOMC minutes from the Federal Reserve's July 28-29 monetary policy meeting.
The minutes will be closely scrutinized for details on policymakers' views of inflation, economic growth and the appropriate path for interest rates. With markets sharply reducing expectations for a September hike following softer inflation and retail sales data, any indication that officials are becoming more comfortable leaving rates unchanged would be supportive of gold, while a more hawkish discussion could pressure the metal by pushing yields and the dollar higher.
Thursday brings weekly jobless claims and the Philadelphia Fed Manufacturing Index. Jobless claims remain one of the timeliest measures of labor market conditions, while the Philly Fed survey offers another look at manufacturing activity and price pressures after the index surprised strongly to the upside in July.
The week concludes with the Friday morning release of the Flash S&P Global Composite PMI for an early snapshot of private-sector business activity in August.
For precious metals, next week's releases will largely be viewed through the lens of their implications for Federal Reserve policy. Softer manufacturing, housing and business activity combined with dovish FOMC minutes could reinforce expectations that rates will remain unchanged, and should provide further support for gold. Stronger data, or renewed evidence of inflationary pressures, could revive rate-hike expectations and create near-term headwinds for bullion.
Economic data to watch next week:
Monday: NY Empire State Manufacturing Index
Tuesday: Housing Starts and Building Permits, Pending Home Sales
Wednesday: FOMC Minutes
Thursday: Weekly Jobless Claims, Philadelphia Fed Manufacturing Index
Friday: S&P Global Composite PMI Flash
