The prices of gold and silver resumed their downward trend during last week. The FOMC’s decision to taper QE3 by $10 billion to $75 billion crowded out the other headlines from the FOMC press conference including the talks about keeping the interest rates low until the end of 2015. In any case, this mini-tapering seem to have had a strong but short term effect on gold and silver prices during last week. This decision may have also crowded out other news items including the updated U.S GDP for the third quarter, which was revised up to 4.1%; housing starts sharply grew by over 22% during last month. Philly fed remained stable during December. Jobless claims increased by 10k to 379k. These last two items weren’t too positive but didn’t seem to have much of an effect on the forex, stocks or commodities markets. Next week, the volatility of gold and silver might sharply rise or dramatically fall on account of the low volume of trade. Last year, the volatility of gold and silver was very low. But in 2011 the volatility during the week of Christmas was very high. Here is a short breakdown for December 23rd to December 27th including: U.S new home sales, BOJ minutes of last meeting, U.S durable goods, Canada’s GDP, U.S jobless claims, and U.S consumer confidence.
The price of gold fell by 2.52% last week; moreover, the average price reached $1,222.06 /t. oz which was 1.7% higher than last week’s average rate. Gold ended the week at $1,204.30 /t. oz.
The price of silver also declined by 0.76%; further, the average weekly rate was $19.69/t oz, which was 0.79% below last week’s rate.
Herein is a short overview showing the main reports and events that will come to fruition during December 23rd and December 27th and may affect precious metals prices.
Let’s breakdown the main events of reports by leading economies:
The main event from last week was the FOMC meeting, in which the Fed decided to cut down its asset purchase program by $10 billion to $75 billion of MBS and LTS. At the same time, the Fed also reassured this decision doesn’t suggest it will raise its short term interest rate anytime soon. But the mini-tapering is still a tapering and as such resulted in the decline of precious metals and the appreciation of USD.
The table below presents the changes in precious metals prices during the day the FOMC makes its announcement and the following day during 2012 and 2013.
The recent decision seems to have contributed to the sharp fall in prices on the next day of the FOMC meeting.
The recent positive reports on the U.S economy including the GDP for the third quarter that grew by 4.1%, the recovery of the housing market, the sharp rise in NF jobs and the decline in unemployment to 7%. These factors may have contributed to this recent mini-tapering. But the U.S economy isn’t out of the woods just yet to the Fed is likely to maintain its QE3 program in the near future. It will also keep, as stated by Bernanke, to interest rate low until the end of 2015. The new Chairman Yellen is in the same school of thought as Bernanke and so is likely to maintain a similar policy.
This week several reports will be released including: new home sales, core durable goods and jobless claims; they could have some moderate effect on USD and bullion prices. Nonetheless, the upcoming week isn’t likely to result in big shift in the prices of gold and silver.
During last week, the Indian Rupee slightly appreciated against the USD. This trend could positively affect the demand for gold and silver in India. Nonetheless, the higher import taxes could keep curbing down the growth in demand for precious metals.
Finally, gold holdings of SPDR gold trust ETF fell again by 1.63% last week. The ETF was also down by 39.73% for the year (up-to-date). Current gold holdings are at 814.12 tons. If the ETF’s gold holdings continue to drop, this may signal the demand for gold as an investment is softening.
In conclusion, this week is likely to keep gold and silver at their current levels with moderate movement on a weekly scale. The drop in demand for gold and silver as investments are likely to keep their prices from recovering. Therefore, for the penultimate week of the year I remain neutral on gold and silver.
For further reading:
- Weekly Outlook of Financial Markets for December 23-27
- Gold and Silver Outlook for December
- Will Gold Companies Recover from Their Plunge?
- Is Silver Wheaton Able to Turn it around?
- What is These Gold Companies’ Silver Lining?