Silver more volatile than gold; $ strong on Fed minutes: Natixis

The US dollar has been strengthening on the back of the minutes of the US Fed meeting regarding a rate hike around two weeks ago, said Bernard Dahdah, Precious Metals Analyst, Natixis. Speaking to CNBC-TV18, he said, the possibility of a rate hike happening is around 55 percent but only after the Brexit result is out. "When it comes to the decision as a whole of the Fed, it is more about the potential effect of Europe as a whole and potential uncertainty that this will create in the European market if the British vote to leave," he added. The Fed, Dahdah said, is probably better off waiting for July after the referendum results come out to see if it makes its decision. On precious metals space, he said, silver is more volatile than gold. "When it comes to gold, holdings are at their highest now since 2013; but we see outflows happening again and investor sentiment changing, which could potentially depress silver and gold prices," Dahdah said. Below is the transcript of Bernard Dahdah’s interview with Manisha Gupta on CNBC-TV18.Q: What is the sense that you make for this sector? There are of course, many concerns. We have seen the US dollar strengthen. The Fed meeting in the next meeting is something that seems to be weighing on the space as well. But how are you connecting the two?A: Yes, it is relating a lot to the Fed meeting. We saw the minutes came out around two weeks ago and this changed the whole feel that the market had with regards to the possibility of the Fed having an interest rate hike. So, the possibility of a rate hike jumped to 32 percent two weeks ago after the minutes. But some of the data that came out of the US were not very good. So, this probability now dropped to 22 percent. On the other hand, a July rate hike now looks at around 55 percent of it happening according to the figures we have in terms of implied probabilities.And I think that that is much more likely because the Fed will want to wait and see what the Brexit result will be, not because Britain by itself is majorly important when it comes to the decision as a whole of the Fed, but it is more about the potential effect of Europe as a whole and potential uncertainty that this will create in the European market if the British vote to leave. So, the Fed is probably better off waiting for July after the referendum results come out to see if it makes its decision. Q: A lot of people seem to be talking on how the gold prices will continue to be volatile, but silver perhaps is a better bet going ahead because of the kind of golden silver ratio that it is holding on and of course because of its industrial uses as well. What is your own sense?A: The trickiness about silver is that it is very correlated to gold. Typically silver is more volatile than gold. So, if there is a drop usually in silver, it will be sharper usually than it is in gold. That said, recently, we have seen silver faring better and some of the industrial data is supporting the price of silver. But one of the concerns we have, be it for gold or silver, is the amount of gold and silver held in physically backed exchange traded funds (ETF) which have rapidly increased this year. When it comes to gold, holdings are at their highest now since 2013. But just as quickly as we have seen it come back in gold and silver physically backed ETFs, we can see outflows happening again, investor sentiment changes and that could potentially depress silver and gold prices.