The prices of gold and silver tumbled down during last week, following the FOMC’s decision to taper again QE3 by another $10 billion to $55 billion. This was Janet Yellen’s first decision as Chair of the Federal Reserve. This decision has also appreciated the U.S dollar against leading currencies including Euro, Aussie dollar and Japanese yen may have also contributed to the fall of precious metals prices. In the U.S several reports were released and showed some progress in the U.S economy: U.S building permits rose by 7.7% during February, while housing starts inched down by 0.2%; the consumer price index increased again by 0.1% and the core CPI by 0.1% – the annual core CPI was still low at 1.6%; the Philly fed index bounced back from -6.3 in February to 9 in March – this means the manufacturing sectors are progressing; finally, jobless clams slightly rose by 5k to reach 320k. Most of these reports especially on housing and manufacturing were positive and may have contributed to the recent fall of gold and silver prices. For the week of March 24th to 28th, several reports and events will be published including: U.S home sales, EU’s monetary developments, U.S consumer confidence, flash Euro Zone Manufacturing PMI, U.S Core Durable Goods, U.S GDP for the fourth quarter, and China’s manufacturing PMI.
The price of gold fell by 3.12% last week; moreover, the average price reached $1,347.94/t. oz which was 1.03% lower than last week’s average rate. The price of silver plunged by 5.2%; further, the average weekly rate was $20.72/t oz, which was 1.89% below last week’s rate.
Herein is a short overview showing the main decisions, reports and publications that will unfold during March 24th to 28th and may affect precious metals prices.
Let’s breakdown the main events by leading economies:
U.S
The recent FOMC concluded, as expected with the FOMC reducing down its QE3 by $10 billion. This decision pressured down the precious metals prices.
The table below shows the reaction of gold and silver to the FOMC’s last decision and previous decisions.
As you can see, the FOMC’s last decision, much like the previous ones, drag down the prices of precious metals – mainly silver.
Looking forward, the upcoming U.S economic reports regarding, among other, housing, labor and manufacturing could offer some additional information regarding the progress of the U.S economy. These reports include: new and pending home sales, consumer confidence, core durable goods, jobless claims, and final estimate of GDP for the last quarter of 2013. If these reports show progresses in the U.S economy, they could curb the recent recovery of precious metals.
The US dollar change direction and appreciated against the Euro, Aussie dollar and Japanese yen, which may have pressured down precious metals. Thus, if the U.S dollar continues to strengthen against leading currencies; this could moderately drag down the prices of gold and silver. The correlation among USD/Yen, Euro/USD and precious metals have strengthened in the past several weeks;
The chart below shows the linear correlation among leading currencies pairs and precious metals prices during the past couple of months.
Europe
This week, several reports will be released including: EU monetary development, flash German, French and EU manufacturing PMI, German business climate, GB CPI, and German consumer climate. These reports and events could affect the Euro/USD, which could play a secondary role in the progress of gold and silver.
India and China
During the previous week, the Indian Rupee appreciated against the US dollar. If this trend continues, it could positively affect the demand for precious metals in India.
In China, the flash manufacturing PMI report will be released and could shed some light on China’s economic progress. If the index continues to fall, it could indicate China’s manufacturing sectors aren’t growing. This in turn, could suggest the demand for gold and silver in China will diminish.
Finally, during the previous week, gold holdings of SPDR gold trust ETF inched up for the fourth consecutive week, this time by 0.05%. The ETF is up by nearly 3% in the past couple of months. Gold holdings were at 816.972 tons by the end of last week – the highest level since the end of last year. If the ETF’s gold holdings continue to rise, this may signal the demand for gold as an investment is strengthening.
Final note
Last week’s tumble of gold and silver is very plausibly a reaction to the recent, and somewhat expected decision of the FOMC to taper QE3 for the third time. The recent economic reports on housing and consumer trends in the U.S were also mostly positive and could have also contributed to the decline of gold and silver. But as I have stated in the past, the FOMC’s decision ramifications tend to dissipate shortly after. The general trend of gold and silver was mostly positive and as such could make a comeback this week. The upcoming reports related to the U.S could also influence precious metal investors. If these reports were to be mostly negative, they could pull back up the demand for securities that are considered safe haven such as gold and silver. The progress in the stock market, and the direction of the U.S dollar could also play a secondary role in determining the course of gold and silver this week. If the U.S dollar and U.S leading equities change direction, they could also pressure back up gold and silver. Finally, considering the sharp turn gold and silver took last week, they could see a correction this week. Therefore, I think gold and silver might slowly recover this week.
For further reading: