Precious metals prices moved with an unclear trend during the first two weeks of November, but by the end of the month silver rose while gold edged down. The recent decision of the EU leaders to approve the next Greek bailout may have helped rally the Euro and by extension commodities prices. Several U.S reports showed signs of progress: the U.S GDP growth rate for Q3 2012 was revised up to 2.7%; non-farm payroll rose by 171 thousand in October. These reports may have pulled down precious metals during the month. The U.S elections were concluded and they may have contributed to the volatility in the gold and silver markets during the week of the elections. Currently, the U.S policymakers are debating the multi-year budget to avoid the fiscal cliff all through to the end of the year. The outcome of these talks could affect not only the USD but also precious metals. The modest increase of Euro and AUD against the USD, mainly during the last couple of weeks of November may have positively affected precious metals prices. Will gold and silver rally during December? The main events of the month will be the last FOMC meeting of the year, the U.S budget talks, the ECB rate decision, and the economic progress of China, U.S and Europe.
Let’s examine the precious metals market for November and give a short outlook for gold and silver for December 2012.
Gold and silver rates started off the month with an unclear trend as both precious metals remained virtually unchanged by the end of the first couple of weeks of November. But then silver started to pick up and rise while gold continued to move with an unclear trend. During November, gold declined by 0.48%; silver, unlike gold, rose by 2.75%.
Let’s divide November into two parts: the table below divides the month at November 16th; I divide the month to demonstrate the change in the pace of both gold and silver; during the first part of November, gold edged down by 0.3% while silver edged up by 0.2%. During the second part of November, silver rose by 2.6%; gold price slipped by 0.2%.
During the first part of November, the U.S dollar appreciated against the Euro, yen, Aussie and Canadian dollar; the Euro/USD and AUD/USD currency pairs are usually strongly correlated with gold and silver prices. Conversely, during the second part of the month, the Euro/USD and AUD/USD rallied. The depreciation of the USD may have positively affected gold and silver. In particular, the USD depreciation may have had a stronger effect on silver than on gold.
The chart below presents the developments of gold and silver prices during November, in which the prices are normalized to 100 on October 31st 2012.
The next chart shows the movements in the ratio of gold to silver (gold price/silver price) during November; the ratio had a modest downward trend mainly during the month. The ratio declined as silver price has out-performed gold price. In the last week of November the ratio ranged between 50 and 51.
Here are several factors that may have pressured down of gold and silver prices during the month:
- The FOMC minutes and Bernanke’s speech didn’t reveal any additional hints regarding the future plans of the FOMC in the next meeting;
- The recent U.S non-farm payroll report was higher than expected and thus lowered the chances of an intervention of the FOMC in a form of a additional stimulus plan;
- The sharp fall in the U.S jobless claims during most of November;
- The deprecation of the Indian Rupee may have curbed the demand for gold in India, among the leading importers of gold;
- Several currencies deprecated against the USD including the yen and Canadian dollar; this may have pulled down bullion prices;
- The improvement in the U.S as presented by the rise in housing starts and U.S GDP; this slow growth is likely to cut the odds of the FOMC intervening again in the near future;
- The failed attempts of EU policymakers on the multi year budget of the EU countries;
- The fall in the U.S money base during previous months (see below for more).
In conclusion, I speculate gold and silver will trade slightly up during the month even though there could be high volatility in precious metals prices. The rise in the U.S money base, partly due to QE3, may positively affect bullion prices. The budget talks in the U.S are likely to raise the uncertainty around the U.S economy, which could positively affect gold and silver via the weakening of the USD. Conversely, if the U.S economy will continue to show progress in the labor, housing and manufacturing sectors (non-farm payroll report, housing starts and PMI manufacturing) this could curb the rise of bullion rates as these reports lower the chances of the Fed expanding its stimulus plan. In this regards, if the Fed will introduce or even hint of additional stimulus in the near future, it could pull up gold and silver. My guess, however, is the Fed won’t act in the upcoming meeting. If other commodities (e.g. oil) will rally it could also positively affect gold and silver. On the other hand, if the U.S stocks will continue to fall, they could pull back gold and silver. The ongoing depreciation of the Indian Rupee is likely to adversely affect gold. I still guess that even though the prices of gold and silver will sharply move throughout the month, their general direction will be upward. Finally, if major currencies including Euro and Aussie dollar will appreciate against the USD, then this could help rally gold and silver.
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