Expected Reaction to FOMC Rate Decision

December 14, 2016 4:41AM CST

The day every trader has been anticipating has arrived – The Federal Reserve will announce its decision to either raise interest rates or keep them unchanged today at 1:00pm CST. Traders should stay light in positions and prepare for a 95% probability in an interest rate hike. There is an argument to be made that the market has already “sold the rumor” of the rate hike and that gold could bottom once the meeting is concluded but at the same time we cannot rule out a knee-jerk reaction to the FED move either. Fed fund futures are assigning a 97.2% probability for a rate hike and a 1 and done result could call in a bottom for gold prices. However, if the Fed’s tone is unambiguously hawkish, which does not appear unlikely in wake of recent economic data and possibility that the Trump administration could bring a sharp increase in infrastructure spending, we can expect the gold/silver market to spike down to new lows.

Both gold and silver derivative holdings declined again overnight, while platinum was able to head in the same direction on Tuesday. Platinum has been unable to break out of a 2-month trading range, but is showing signs that the lower portion of that range is a “value done” for prices. While we could see some choppy action in gold and silver ahead of the FOMC meeting result today we think the biggest volatility will occur as the trade digests forward guidance statements. In other words, a rate hike is probably already priced into the market, but if there is a sense the Fed is more unified in its view and/or is turning more hawkish because of the current political environment, we could see a large knee-jerk reaction down after the initial report impact.

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