Following the tumble in the prices of gold and silver during June, both precious metals bounced back last month. Moreover, their rally coincided with the recovery of leading currencies such as Euro and Japanese yen against the US dollar. Many investors still wait for the FOMC decision in September regarding whether the Fed will taper QE3. In last FOMC meeting, no change to policy was made. Until September and volatility of precious metals might remain low as it did during July and the speculations around the Fed’s next move will remain high. Will precious metals benefit from these circumstances and extend their rally for the second month in a row? Let’s breakdown the upcoming events and reports that may relate to the precious metals market and will unfold during August; let’s also provide a short analysis for July.
Gold and Silver Prices July 2013
Gold and silver prices bounced back during July. Their rally coincided with the recovery of the Euro and Japanese yen against the USD. The recent FOMC meeting didn’t stir up the precious metals market and bullion traders remain poised for the September FOMC meeting that could be the one, in which the Fed will announce of tapering QE3. By the end of the month, gold rose by 7.24% (as of July 31st); silver, by 0.91%. For gold this was the best performing month this year. For silver, this was the best performing month since January 2013. Let’s divide July into two sections: the table below divides the month at July 10th; I divide the month to demonstrate the change in pace of gold and silver prices; during the first part of July, gold rose by 1.9%; silver fell by 1.5%. During the second part of July, however, silver rallied by 2.5%; gold price rallied by 5.2%.
During the first part of July, the U.S dollar appreciated against the Euro, Japanese yen and Canadian dollar; the Euro/USD and USD/CAD currency pairs are usually strongly correlated with gold and silver. During the second part of the month, the Euro and Japanese yen bounced back against the USD. Conversely, the Aussie dollar, weakened against the USD, which might have curbed the rally of gold and silver. The chart below presents the developments of gold and silver prices during July, in which the rates are normalized to 100 on June 28th 2013.
The ratio of gold to silver (gold price/silver price) slowly rose during the month. The ratio increased as silver price has under-performed gold price. During the month the ratio ranged between 62 and 68.
Here are several factors that may have adversely affected gold and silver prices during the month:
- The recent statement of the FOMC meeting, in which the Fed left policy unchanged;
- Several U.S reports showed growth: new home sales rose in June; manufacturing PMI rose to 55.4 in July; retail sales rose by 0.6% during June. These reports suggest the U.S economy is progressing and thus may have pulled down precious metals;
- The recent decrease in the U.S jobless claims during most of July;
- The depreciation of the Indian Rupee may have dragged down the demand for gold in India, among the leading importers of gold;
- China’s manufacturing PMI only slightly rose to 50.3 during July;
- The depreciation of the Aussie dollar may have pulled gold and silver prices;
Here are several factors that may have positively affected gold and silver during the month:
- The appreciation of several currencies including Euro, Japanese yen and Canadian dollar during the second part of July;
- Some U.S reports were not as good as many had anticipated: housing starts fell by 9.9% in June; GDP growth rate in the second quarter of 2013 and reached 1.7%;
- The decision of BOE, BOC, ECB and RBA to keep their respective cash rate flat in July;
- According to the recent U.S non-farm payroll report, 162k jobs were added – this was lower than expected any have pulled up silver price;
- The slowdown in the recovery of the U.S equity markets that serve as an alternative investment for bullion;
- The appreciation of several currencies such as Euro and Canadian dollar at the beginning of the month against the USD;
- The pledge of the FOMC to keep its low rates until mid 2015;
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