Gold and Silver Forecast for May

The gold and silver market cooled down along with the rest of the financial markets as precious metals didn’t do much on a monthly scale. Even the recent FOMC meeting, in which the Fed decided to taper again QE3 by another $10 billion, didn’t stir up the markets. Looking forward, will gold and silver resume their downward trend? Let’s examine the upcoming events, decisions and reports that may stir up the precious metals market; let’s start, however, with a short review of the main developments during April. 

Gold and Silver in April

Gold and silver prices didn’t do much during last month as they kicked off the month on a positive note only to change course and slowly decline in the last two weeks of April. Their unclear trend coincided with the low volatility in the forex market, in which the US dollar slightly depreciated against the Euro, Aussie dollar and Japanese yen. By the end of April, the price of gold rose by 0.95%; the price of silver fell by 3.06%.

Let’s split April into two parts: the table below divides the month at April 18th. I divide the month to demonstrate the shift in pace of gold and silver prices; during the first part of April, gold rose by 3.4%; silver, by 1.3%. During the second part of April, however, gold slipped by 2.4%; silver price, by 4.3%.

 

Gold and Silver dollar euro percent change  April 2014

During the first part of April, the U.S dollar depreciated against the Euro, Yen, Canadian dollar, and Aussie dollar; in the second part, the US dollar slightly appreciated against the yen and Aussie dollar. The USD/Yen and AUD/USD currency pairs are usually strongly correlated with gold and silver.

The chart below shows the shifts of gold and silver during April, in which the prices are normalized to 100 on March 31st 2014.

Gold and silver forecast April 2014

The ratio of gold to silver (gold price/silver price) mostly rose during the month. The ratio increased as silver price has under-performed gold price. During the month the ratio ranged between 64 and 68.

The recent FOMC meeting had a modest negative impact on the gold and silver; the minutes of this meeting could provide some additional information regarding the FOMC members’ deliberations and reservations from the recent decision. But the U.S economy seems to have slowly recovered in the past several months especially in the labor market. If the U.S economy keeps showing signs of progress as indicated in the forthcoming reports on employment, housing and manufacturing, then the demand for gold and silver could further diminish. Further, if equity markets keep slowly recovering, this could suggest more investors are pulling into equities and out of precious metals. The recent fall in GLD’s gold holdings signals the demand for gold as an investment softened. Therefore, the bullion market might start to slowly weaken.  Finally, China and India could also play a secondary role in the precious metals market. If these economies’ progress slows down, this could indicate a potential drop in the demand for gold and silver in these countries.

In conclusion, I think gold and silver may change course and start to slowly decline during May.  

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