Gold and Silver Outlook for April 2013

Gold and silver prices remained virtually unchanged during March. The latest developments in Cyprus dragged down the Euro but didn’t seem to influence much bullion traders. The increase in U.S money base, partly due to the FOMC’s QE3 program, doesn’t seem to pull up the demand for safe haven investments. The amount of gold hoards of the gold ETF SPDR continues to dwindle. This fall suggests the demand for gold as a safe haven declines. Will gold and silver resume their rally during April? Let’s examine the precious metals market for March and provide a short outlook for gold and silver for April.

Gold and Silver Prices March 2013

Gold and silver prices remained nearly unchanged during March. In particular, the price of gold rose while the price of silver edged down. The developments in Europe including the Cyprus bailout and the slow progress of the U.S economy didn’t seem to affect bullion prices. By the end of March, gold rose by 1.08%; silver slipped by 0.36%. Due to these little movements, March was unimpressive for gold and silver.

Let’s divide March into two: the table below divides the month at March 13th; I divide the month to demonstrate the change in pace of silver; during the first part of March, gold slightly increased by 0.7%; silver, by 1.9%. During the second part of March, however, silver declined by 2.2%; gold price slightly rose by 0.4%.

Gold and Silver dollar euro percent change  April 2013

During the first part of March, the U.S dollar appreciated against the Euro, Canadian dollar and Japanese yen; the USD/CAD and AUD/USD currency pairs are usually strongly linked with gold and silver prices. During the second part of the month, the EURO continued to fall against the USD. But the yen, Canadian dollar and Aussie dollar rallied.

The chart below presents the shifts of gold and silver prices during March, in which the prices are normalized to 100 on February 28th 2013.

Gold forecast and silver outlook  April 2013

The next chart presents the movement in the ratio of gold to silver (gold price/silver price) during March; the ratio had an upward trend mainly during the last two weeks of March. The ratio rose as silver price has under-performed gold price. During March the ratio ranged between 54.5 and 56.5.

Gold and Silver prices ratio April 2013

Here are several factors that may have pressured down of gold and silver prices during the month:

  1. Several U.S reports showed growth of its economy: the manufacturing PMI rose to 54.2%; housing starts (opens pdf) increased by 0.8%; the forth quarter GDP was revised up to 0.4%; the Philly fed index bounced back in March to 2%.  These reports may have dragged down precious metals prices;
  2. The recent U.S non-farm payroll report was positive as 236k jobs were added; the unemployment rate edged down to 7.7%; this report tend to be negatively correlated with gold and silver rates;
  3. The recent FOMC meeting didn’t contribute any insight behind the future steps of the FOMC. Nonetheless, as long as the FOMC doesn’t augment its monetary policy, the prices of precious metals aren’t going anywhere;
  4. The depreciation of several other currencies including Euro and Japanese yen during March;
  5. China, among the leading countries in importing gold, showed little signs of recovery;

Here are several factors that may have pulled up gold and silver during the month:

  1. Several U.S reports were negative, e.g. new home sales declined in February. This may have pulled down the USD;
  2. The appreciation of several currencies such as Aussie dollar and Canadian dollar during the month against the USD. These currencies tend to be positively correlated with precious metals;
  3. The appreciation of the Indian Rupee may have pulled up the demand for gold in India, among the leading importers of gold;
  4. The developments in Europe including the whole Cyprus bailout debacle. This news may have raised, for a short period, the demand for safe haven investments;
  5. The implementation of the spending cuts in the U.S may eventually curb the growth of the U.S economy;
  6. The ongoing rise in the U.S money base during 2013 (see below for more).
  7. The recent rise in the U.S jobless claims during the last week of March;
  8. The pledge of the FOMC to maintain low rates until mid 2015;

Last month’s FOMC meeting didn’t help rally the prices of gold and silver. The upcoming minutes of the FOMC meeting might offer some insight behind the future plans of the Fed. In such a case, this could affect precious metals. If the U.S economy will continue to show growth, it could curb the rally of precious metals and perhaps even pull them down. In Europe, the recent debacle in Cyprus over its bailout dragged down the Euro and only moderately raised the prices of gold and silver. The market sentiment, during those days, turned bearish. Unless another event such as that will occur, the market sentiment will turn bullish again. This could lead to a decline in demand for safe haven investments such as U.S treasuries bills and precious metals. Moreover, if the stock market will continue to rally, this could indicate the market is becoming bullish. The ongoing decline in the amount of gold held by GLD ETF might suggest the demand for gold as an investment continues to dwindle. The appreciation of the Indian Rupee might pull up the prices of gold via the rise in demand in this country. Finally, if major currencies including Euro and Aussie dollar will depreciate against the USD, then this could also drag down gold and silver prices. In conclusion, I guess gold and silver will slowly dwindle during April.

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