Gold and Silver Forecast for April

The recent FOMC meeting concluded with another tapering decision. This time, this decision had a lingering negative effect on the prices of gold and silver. But the recent mini-taper wasn’t the only issue on the table. The speculations around the timing of raising rates were also driving the prices of precious metals down. This month’s FOMC meeting isn’t likely to stir up the markets as the last one has. Looking forward, will gold and silver recover from their recent fall? Let’s analyze the upcoming events, decisions and reports that may affect precious metals; let’s start, however, with a short breakdown of the main events of March.

Gold and Silver Prices March 2014

Gold and silver prices tumbled down during the month mainly during last couple of weeks of March. Their plunge at the last couple weeks of March coincided with the depreciation of the Euro, Aussie dollar and Japanese yen against the USD. By the end of March, the price of gold rose by 2.9%; the price of silver, by 7%.

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Gold and Silver dollar euro percent change  April 2014

Let’s split March into two parts: the table below divides the month at March 17th. I divide the month to demonstrate the change in pace of gold and silver prices around the FOMC meeting, which was held during March 18-19; during the first part of March, gold rose by 3.9%; silver inched up by 0.2%. During the second part of March, however, gold dropped by 6.5%; silver price, by 7.1%.

During the first part of March, the U.S dollar depreciated against the Euro and Canadian dollar but appreciated against the Aussie dollar; the Euro/USD and AUD/USD currency pairs are usually strongly correlated with gold and silver.

The chart below shows the changes of gold and silver during March, in which the prices are normalized to 100 on February 28th 2014.

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Gold and silver forecast April 2014

The ratio of gold to silver (gold price/silver price) sharply rose during the month. The ratio increased as silver price has under-performed gold price. During the month the ratio ranged between 66 and 62.

The correlation between gold and silver prices slightly strengthened during March compared to February, but it’s still weal compared to previous months. The correlation reached during March 0.76 – the second lowest level in the past year. If the correlation remain weaken, it could imply the effect gold has on silver diminishes.

The standard deviation of gold rose during March compared with its standard deviation in February. Conversely, silver’s standard deviation declined to 1.19%. This means, the volatility of gold picked up, but silver’s volatility diminished.

The last FOMC meeting had a negative effect on the precious metals market; the next meeting, at the end of April, is likely to have little (if any) adverse effect on bullion prices; even if the FOMC tapers again QE3, this time, there is not press conference and main impact could only be related to the Fed’s decision around the next rate hike.  The upcoming reports referring to the progress of the U.S economy in employment, GDP, housing and manufacturing could also have a short term effect on gold and silver. If the U.S labor market continues to recover, this could pressure down precious metals. Further, if equity markets continue to slightly rise, this could suggest more investors are pulling into equities and out of bullion. The ongoing increase in GLD’s gold holdings signals the demand for gold as an investment remains robust. Therefore, these mixed signals will eventually resolve in a clear direction. Until then, the precious metals market could move in an unclear trend in the coming weeks.   Finally, China and India could also play a role in the precious metals market. If these economies’ growth slowdown, this could indicate a potential decline in the demand for commodities including gold and silver in these countries.

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