The FOMC minutes post-mortem saw renewed cause for caution among investors, sending the US dollar lower and buoying haven assets like precious metals. The most obvious impact was felt in the USD/JPY pair which has fallen to 17-month lows as the US dollar index falls to levels last seen in November of 2015. Although FOMC voting members debated the merits of hiking interest rates additionally in April, the real emphasis of the discussion was the mounting global risks that stood in the way of additional progress on policy. Silver prices have gradually retreated from the March highs that came on the back of renewed risk aversion due to hawkish leanings of certain members. However, should the Fed continue to underline external hazards, the stage could very well be set for another round of momentum higher in precious metals.

Policy Remains a Key Driver of Price Momentum

While precious metals are especially sensitive in times of heightened market volatility, for the most part, silver is reacting to the growing possibility that the Federal Reserve will not be able to tighten monetary policy even further in 2016. Even though the CME Group’s FedWatch tool is currently pricing in the possibility of an April hike at 3.50%, a far cry from earlier expectations and comments from key policymakers. At this rate, futures contracts are not pricing in the probability of above 50.00% for a single rate before the end of 2016, hurting dollar bulls. Moreover, risk aversion continues to grip markets as evidenced by the continued unwind of the USD/JPY carry-trade, typically serving as a strong barometer of risk sentiment. With the pair sinking below the critical 110.00 level to the lowest levels since January 2014, there are growing signs that extreme policy measures is failing to produce results.

Although the outlook for policy accommodation is increasingly unclear, the one thing that remains certain according to the Federal Reserve remains is its ongoing data dependency. While easy to cite specific factors as positive overall for the economy, the latest prints on employment leave much to be desired. They key force that will be behind any prolonged period of monetary policy normalization will be inflation which continues to creep higher towards the Federal Reserve’s mandated 2.00% price growth. Additionally, the Federal Reserve’s preferred gauge for measuring inflation, PCE or personal consumption expenditure, rose by 0.96% year over year, the highest reading since 2013. Positive headline figures mask the underlying fundamental weakness in key sectors of the economy, notably in the durable goods category. One of the key drivers of economic momentum remains notably absent, thanks in large part to a faltering global outlook.