Gold and Silver Forecast for June 16-20

Gold and silver resumed their upward trend and rallied for the second week in a row. The rise in violence in Iraq may have contributed to the rally of not only oil but also assets, which are considered safe haven investments such as gold and silver. Last week, several U.S reports were released and were mostly positive: The JOLTS showed a 7% rise in job opening during April to reach 4.5 million. The PPI inched down by 0.2%; retail sales slightly grew by 0.3%; finally, jobless clams slightly rose by 4K to reach 317K. This week, the main event of the week will revolve around the FOMC meeting. Besides the FOMC meeting, in the U.S the housing starts, building permits, CPI, and industrial production, and Philly Fed index were be published. So let’s break down the economic calendar for the week of June 16th to June 20th 

During last week, the price of gold rose by 1.72%. Gold ended at $1,273.80/t. oz. The price of silver also increased by 3.5%; further, the average weekly rate was $19.32/t oz — 2.36% above last week’s price of $18.87/t oz.

Gold and silver Chart 2014  June 16

The chart above shows the prices of gold and silver normalized to the end of May. As you can see, precious metals prices rallied in the past couple of weeks.

Find below a short overview showing the main decisions, reports and events that will come to fruition during June 16-20 and may affect the precious metals market.

Let’s breakdown the main events, speeches and reports by leading economies:

U.S

The main event of the week will be the FOMC meeting. This meeting will revolve around three main issues:

  1. Economic update: the FOMC will update its economic projections for the U.S economy. If the Fed revises up its outlook this could mean the FOMC may come up with a more hawkish monetary policy;
  2.  Tapering QE3: The current expectations are that the FOMC will keep its tapering down its asset purchase program by another $10 billion so that QE3 will fall to a rate of $35 billion a month of LT securities. This tapering is likely to drag further down precious metals prices as it did in previous decisions ( see below);
  3. Rate decision: In the press conference to follow the press release of the FOMC decision, the Chair, Janet Yellen, will talk to the press about the recent economic developments and its recent FOMC decision.  If she were to address the timing of when will the FOMC start raising rates, this could have a substantial impact on U.S dollar and precious metals prices. Any hints of potential raise by the end of the first quarter of 2015 could drag down the prices of gold and silver.

 

The table below shows the reactions to past FOMC decisions.

FOMC statment and Gold Silver May 3In the past five meetings the prices of gold and silver dropped the day following the release of the FOMC’s decision.

Besides the FOMC’s policy meeting, several U.S economic reports will be released during the week most notably housing starts, CPI, industrial production, jobless claims, and Philly Fed index. If these reports also show the U.S economy is recovering, they could pressure up U.S equities and steer investors away from bullion. 

During last week, the US dollar depreciated against the Yen, Canadian dollar and Aussie dollar but rallied against the Euro. Nonetheless, the correlations among gold, silver and leading currencies pairs continue to be weak. Thus, the recent decline in value of the U.S dollar didn’t have much of an impact on the direction of gold and silver. 

Europe

This week, the ECB rate cut could have some lingering adverse effect on the Euro. Moreover, the expected release of the EU CPI, German ZEW economic sentiment, Great Britain Retail Sales, and GB CPI could affect the British pound and Euro. Since these currencies have had weak correlations with the prices of bullion in recent weeks, they aren’t likely to have a strong impact on gold and silver.

Asia

During last week, the Indian Rupee slightly fell against the US dollar. If the rupee keeps depreciating, it could soften the demand for precious metals in India.

Finally, during last week, gold holdings of SPDR gold trust ETF remained unchanged. The ETF is still down by 1.77% since the beginning 2014. Gold holdings were at 787.076 tons by the end of the previous week. If the ETF’s gold holdings start to pick up, this may signal the demand for gold as an investment is rising. 

Final note

The FOMC meeting could stir up the markets especially if Yellen hints of the timing of raising the Fed’s cash rate. The expected tapering decision is likely to slightly bring down the prices of gold and silver.

For a short overview of the highlights of June’s movers and shakers, check out the video below:


For further reading: