The gold and silver market continued to cool down during last week. In the U.S, several reports were published and showed mixed signal regarding the progress in its economy: new home sales fell by 3.3% during February; pending home sales also slipped by 0.8% to 93.9; the last estimate of the U.S GDP for Q4 2013 was released and was revised up from 2.4% to 2.6%; finally, jobless clams slightly fell by 10k to reach 311k. China manufacturing PMI by HSBC dropped to 48.1 in March – meaning the manufacturing sectors are contracting. This news may have also adversely affected commodities prices. For the week of March 31st to April 4th, several new items will come to fruition including: FOMC Chair Yellen’s speech, U.S non-farm payroll report, ECB rate decision, China’s manufacturing PMI, U.S trade balance, U.S ISM manufacturing PMI, EU and German retail sales, and U.S factory orders.
The price of gold tumbled down by 3.14% last week; further, the average price reached $1,302.96/t. oz which was 3.34% lower than last week’s average rate. Gold ended the week at $1,294 /t. oz.
Silver price also declined by 2.47%; further, the average weekly rate was $20.72/t oz, which was 4.21% below last week’s price.
Herein is a short overview showing the main decisions, reports and publications that will unfold during March 31st to April 4th and may affect precious metals prices.
Let’s breakdown the main events by leading economies:
This week, several reports will be released including: non-farm payroll report, factory orders, trade balance, manufacturing PMI, non-manufacturing PMI, and jobless claims. If these reports show signs of progresses in the U.S economy, they could pressure down precious metals prices.
Specifically, the non-farm payroll report tends to have a strong relation with gold and silver prices.
The table above presents the reactions of the prices of gold and silver to previous U.SNF payroll reports. In the last NF payroll report, which was better than anticipated, gold and silver tumbled down. If this time, the report exceeds the current expectations, bullion prices could decline further.
Janet Yellen will give a speech this week at the 2014 National Interagency Community Reinvestment Conference in Chicago. The title of the speech is “Strengthening Communities”. Her words carry weight and could stir up the bullion markets especially if she were to address the FOMC’s monetary policy or the progress of the U.S economy.
During last week, the US dollar slightly appreciated against the Euro and Japanese yen, which may have also dragged down precious metals. Conversely, the Aussie dollar and Canadian dollar rallied against the USD. If the U.S dollar continues to strengthen against the Euro and Japanese yen; this could moderately drag down the prices of gold and silver. The correlation among AUD/USD, Euro/USD and precious metals have weakened in recent weeks;
The US dollar slightly appreciated against the Euro and Japanese yen, which may have also dragged down precious metals. Thus, if the U.S dollar continues to strengthen against leading currencies; this could adversely affect gold and silver.
The chart below presents the linear correlation among leading currencies pairs and precious metals prices during March.
This week, the ECB will announce its cash rate for April, which currently stands on 0.25%. The current projections are that ECB will maintain its cash rate unchanged and won’t introduce any new stimulus. On the off chance the ECB will change its policy or even hint of potential future changes, the Euro could decline further, which could drag down commodities prices.
Furthermore, during this week several reports will come out including: EU and German retail sales, Spain’s unemployment report, EU CPI, Spain’s manufacturing PMI, and German factory orders. These reports and events could affect the Euro/USD, which partly affect the direction of gold and silver.
India and China
During last week, the Indian Rupee sharply appreciated again against the US dollar. If this trend persists, it could positively affect the demand for gold and silver in India.
In China, the manufacturing PMI report will be publish and could shed some light on China’s economic progress. In the flash report, the PMI dropped again and was well below 50. If the index continues to decline, it could indicate China’s manufacturing sectors are contracting. This in turn, could indicate the demand for gold and silver in China will weaken.
Finally, during last week, gold holdings of SPDR gold trust ETF remained unchanged. The ETF is still up by 3% in the past couple of months. Gold holdings were still at 816.972 tons by the end of last week. If the ETF’s gold holdings pick up again, this may signal the demand for gold as an investment is strengthening.
The recent weakness in the gold and silver market is plausibly an ongoing reaction to the last FOMC decision and the recovery of the US dollar. The signs of little progress in China and modest rally of the U.S economy could have also dragged down precious metals. Looking forward, if the U.S economy continues to show signs of recovery, e.g. the NF payroll report exceeds the market expectations, this could pressure further down gold and silver. Moreover, if the US dollar appreciates further against the Euro and Japanese yen, it could drag down gold and silver. Further down the line, I still think the negative market reaction to the FOMC’s decision will dissipate in the near future. The progress of the stock market could also play a secondary role in determining the direction of gold and silver. If the U.S leading equities continue to slowdown, they could also pull back up gold and silver. Therefore, I think gold and silver might decline further this week.
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