Gold and Silver Forecast for January 20-24

Gold and silver continued to slowly recover during last week following their tumble in December. The current low volatility in the bullion market might continue until the next FOMC meeting at the end of January will take place. This meeting might stir up the precious metals market again. In the meantime, several reports came out last week and showed the U.S economy is slowly recovering: Philly Fed index rose to 9.4 in January; jobless claims declined by 2k to 326k; retail sales grew by 0.2% during December; both CPI and PPI increased in December by 0.3% and 0.4%, respectively. Despite the sharp rise in CPI, the core CPI inched up by only 0.1%; the annual rate remained at 1.7%. For the week of January 20th to 24th, several reports and speeches will take place this week including: China’s GDP report, German Ifo business climate, U.S existing home sales, U.S manufacturing PMI, BOC monetary policy report and rate decision, China, Germany and France’s manufacturing PMI reports, and U.S. jobless claims. 

The price of gold edged up by 0.4% last week; moreover, during last week, the average price reached $1,245.38/t. oz which was 0.93% higher than last week’s average rate. Gold ended the week at $1,251.9 /t. oz.

Silver also inched up by 0.33%; further, the average weekly rate was $19.86/t oz, which was 1.77% above last week’s price.

Herein is a short overview showing the main decisions, reports and events that will unfold during January 13th to 17th and may affect bullion prices.

Let’s breakdown the main events by leading economies:

U.S

Following the release of the minutes of the last FOMC meeting a couple of weeks ago, the next FOMC even will take place at the end of the month. Until then, bullion traders will continue to read the tea leaves and see if the U.S reports show of any potential changes in the progress of the U.S economy. The upcoming reports will be related to manufacturing and housing sectors including: manufacturing PMI and existing home sales. The regular weekly update on the jobless claims will also be released. If these reports continue to show progress in the U.S economy, they could pressure down the prices of gold and silver. Moreover, if the U.S dollar continues to rally against leading currencies such as Euro and Aussie dollar, this could also moderately pull down the prices of gold and silver. The Euro/USD and precious metals had a very weak correlation in recent weeks (during December/January the linear correlation was only -0.12 – mid weak correlation). These correlations show that the U.S dollar had little to do with the progress of precious metals. As such, this could suggest the progress of the U.S dollar will have little effect on precious metals prices’ development.

India and China

During the previous week, the Indian Rupee slightly depreciated against the USD. If this trend continues, it could adversely affect the demand for gold and silver in India.

China is still leading the way in its demand for gold and silver. The progress of this economy could indirectly indicate the potential development in the demand for gold and silver. The upcoming financial releases on China’s economy including GDP for the fourth quarter and manufacturing PMI could offer some additional info regarding the progress of this country.

Finally, gold holdings of SPDR gold trust ETF changed course and rose in the past week – for the first time since early November 2013. The ETF was still down by nearly 5.5% in the past couple of months and 0.5% since the beginning of 2014. Gold holdings were at 797.054 tons by the end of last week. If the ETF’s gold holdings continue to pick up, this may signal the demand for gold as an investment is slowly recovering.

In conclusion, this week gold and silver might continue to slowly rise. Precious metals seem to slowly recover from their tumble in December.  The few U.S reports could modestly affect the prices of gold and silver; if they show the U.S economy continues to improve, precious metals might slightly decline. The slow rise in volume of trade could cut down the level of volatility of prices. Finally, if the demand for gold and silver as investments continue to pick up, they could slightly strengthen bullion prices. Therefore, I remain neutral on gold and silver.

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