Gold and Silver Forecast for May 26-30

Gold and silver remained relatively flat during last week despite the appreciations of the U.S dollar against the Euro and Japanese yen. Will gold and silver start to show a shift in their flat line stance? For the week of May 26th to May 30th, the main economic reports from the U.S to be released include: a second estimate to its Q1 GDP, core durable goods, jobless claims, and pending home sales. In Europe, China and Japan the main reports and events include:  Germany’s employment update and retail sales; BOJ’s Governor Kuroda will give a speech; China’s manufacturing PMI and Japan’s retail sales. Let’s start with a quick review of last week’s stats and then dive into the expected developments, events and reports for the upcoming week.   

During last week, the price of gold edged down by 0.1%; the average price reached $1,292.64/t. oz which was 0.31% below than last week’s average. Gold ended the week at $1,291.70 /t. oz.

The price of silver also slightly rose by 0.4%; the average weekly rate was $19.38/t oz, which was 0.68% above last week’s rate.

Despite the modest movement of gold and silver, the volume of trade picked up in the past week as indicated in the chart below.

volume Gold & silver prices 2014  May 25If the volume of trade continues to rise, this might eventually translate to higher volatility.

The ratio between the two precious metals remained around 66, as indicated in the chart below. This shows that the progress of gold and silver moved in a similar pace.

Gold  to silver ratio Chart 2014  May 25Currencies / Precious Metals Correlations – May Update

During the previous week, the US dollar appreciated against leading currencies e.g. the Eur/USD currency pair fell by 0.47% to 1.3629. Moreover, the U.S dollar appreciated against other currencies such as yen and Aussie dollar by 0.46% and 1.38%, respectively. The correlations among gold, silver and leading currencies pairs have weakened during the month as indicated in the chart below.

Correlation Gold and EURO USD 2014 May 25Based on the above, the recent recovery of the U.S dollar didn’t have a strong impact on gold and silver. Looking forward, this week relation could suggest that even if the U.S dollar further rises, it won’t drag strongly down the prices of gold and silver.

Herein is a short overview showing the main decisions, reports and events that will come to fruition during May 26th to 30th and may affect the bullion market.

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

U.S

Last week’s publication of the minutes of the FOMC meeting didn’t have a strong impact on the bullion market. The minutes didn’t reveal much about the Fed’s plan or timing of raising the short term interest rate. But the members have already started to consider ways to make this rate hike considering the Fed’s large balance sheet ( after it had ran QE1-3):

“The Committee’s discussion of this topic was undertaken as part of prudent planning and did not imply that normalization would necessarily begin sometime soon. A staff presentation outlined several approaches to raising short-term interest rates when it becomes appropriate to do so, and to controlling the level of short-term interest rates once they are above the effective lower bound, during a period when the Federal Reserve will have a very large balance sheet. “

Here is an example of how the FOMC kept its timing obscure:

“It was emphasized that the tools available to the Committee will allow it to reduce policy accommodation when doing so becomes appropriate. “

In any case, the bullion market didn’t react to this new. Looking towards this week, several financial U.S economic reports will be released as indicated above. The main report will be the second estimate of the GDP for Q1. If the report shows a big rise in growth (the first estimate showed only a 0.1% growth), this could push up the U.S dollar and might even steer investors away from precious metals and back into equities. 

Asia

China’s manufacturing PMI report will be released this week. In the previous report, the PMI inched up to 50.4. If this report shows another gain, this could indicate China’s economy is progressing, which will suggest its demand continues to rise. In a recent report by China Gold Association, China’s first quarter gold consumption reached 323 tons – an increase of 0.8% from 2013. Conversely, consumption of gold bars plunged by 44% to reach 67.9 tons.

During last week, the Indian Rupee slightly rose against the US dollar. If the rupee further appreciates, it could expand the demand for precious metals in India.

Finally, during last week, gold holdings of SPDR gold trust ETF dropped by 0.65%. The ETF is down by 3% since the beginning 2014. Gold holdings were at 776.893 tons by the end of last week. If the ETF’s gold holdings keep declining, this may signal the demand for gold as an investment is softening. The chart below shows the fall in this ETF’s gold holdings in the past year.

gold gld May 24

Takeaway

The main events of the week will revolve around the U.S GDP. Further, the publications of the U.S home sales and core durable goods could also play a secondary role in indicating the progress of the U.S economy. Finally, the manufacturing PMI of China could also play a smaller role in moving bullion prices.  Based on the upcoming news and recent developments, I remain neutral on gold and silver.

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