Gold prices are under some pressure today as lower crude oil remains a concern and as markets await the FOMC meeting announcement this Wednesday. Crude oil dipped below $35 per barrel earlier in the session, while silver prices have hit a six year low. Stocks are seeing some volatility today as well ahead of the Wednesday FOMC announcement.
The dollar index is trading slightly lower today as of this post and may also potentially exhibit some increasing volatility ahead of the Fed.
The crude oil market seems to be the main area of focus right now. Lower oil prices seem to be having a rippling effect across markets and with no significant upside in oil likely at this point; markets and investors may remain anxious and could potentially move away from risk assets and into perceived safe-haven assets.
The markets are anxiously awaiting the Wednesday FOMC meeting announcement at which time it is widely expected that the central bank will hike interest rates by 25 basis points. This would be the first rate hike by the Fed in nearly a decade and may potentially drive volatility in stocks, treasuries, currencies and other instruments.
While this initial rate hike by the Fed has likely already been thoroughly discounted by the markets; the potential for a knee-jerk reaction does remain. Gold and silver could potentially see another bout of selling once the Fed does initiate lift-off. Another move lower, however, could potentially represent a longer-term bottom in the metals.
In addition to crude oil and the Fed, investors are likely also paying close attention to the ongoing sell-off in junk bonds. Some energy companies are getting hit hard as implied default rates accelerate. The commodity price collapse, most notably in crude oil, has been the most significant catalyst for the drop in high yield.
While some believe that such an acceleration in implied defaults is indicative of an upcoming recession, others believe that will not prove to be the case and that the current uptick is simply indicative of a recession limited to the oil market.
As the junk bond market garners more headlines, however, concerns over the sector and the economy may intensify. This could potentially lead to a flight to safety, in which investors dump risk assets such as equities and look to put capital to work in perceived safe-haven assets such as treasuries and precious metals.
