Gold and Silver Forecast for July 21-25

Silver and gold took a nosedive last week. Even the escalation in the relations between Russia and US wasn’t enough to pull up precious metals. The Chair of the FOMC Janet Yellen testified before Congress, in which she didn’t provide much information regarding the FOMC’s future plan, but she referred to the potential bubble in the biotech and social media markets. Was this an indirect hint regarding the FOMC’s future rate hike? This week, the main U.S reports to come out include: CPI, durable goods, new and existing home sales. In Europe, Germany’s manufacturing PMI report will be released. Governor Carney will give a speech and BOE will decide on its cash rate. Finally, China’s manufacturing PMI monthly update will be released. What is next for precious metals? So let’s review the economic calendar for the week of July 21st to 25th 

The price of gold dropped by 2.1% last week; the average price reached $1,305.98/t. oz which was 1.58% below last week’s average rate of $1,326.88/t. oz. Gold ended the week at $1,309.40/t. oz.

The price of silver also fell by 2.7%; further, the average weekly rate was $20.89/t oz, which was 1.40% below last week’s rate $21.19/t oz.

Let’s review the main events and reports that could impact the precious metals market during July 21-25

U.S

This week the main reports will be related to the CPI, durable goods and housing data. If the core CPI continues to pick up, this could suggest the U.S economy is heating up and thus increase the chances of the FOMC hiking its cash rate. Conversely, higher inflation could also steer more investors towards precious metals.

The housing figures will provide another indication of any progress in this sector, which hasn’t picked up in the past several months. Any growth in housing could also increase the odds of the FOMC taking a more hawkish stand.

Finally, the core durable goods report is another indictor for the progress of the U.S economy.

During last week, the US dollar slightly appreciated against the Euro and Aussie dollar. It remained nearly flat against the yen. The correlations among gold, silver and leading currencies pairs have strengthened again last week, and could suggest the recovery of the USD coincided with the drop in precious metals prices. 

China

Last week, China’s GDP for the second quarter was released, in which the annual growth rate reached 7.5% – slightly above the market expectations. This was also moderately above the first quarter growth rate of 7.4%. This news suggests the Chinese economy is progressing at slightly faster pace than in the past, which could also imply higher sales of gold and silver.

This week, China’s manufacturing PMI report for July will be published. If this index shows another rise in this index, it could be another signal that the Chinese economy is picking up.

Finally, during the previous week, gold holdings of SPDR gold trust ETF increased again by 0.64%. The ETF is up by 0.49% since the beginning of the year. Gold holdings were at 805.136tons by the end of last week. If the ETF’s gold holdings continues to pick up, this may signal the demand for gold as an investment is strengthening. 

Takeaway

The recent drop in gold and silver prices may have been partly related to a correction for the sharp gains in the previous weeks and the testimony of Yellen. But this could have been a short term correction and we could see a modest gain on a weekly scale.

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