The prices of gold and silver changed direction and rallied during last week. The low volume of trade kept the prices of gold and silver with little movement. On a weekly scale, however, both precious metals have rallied. The price of silver has erased its decline from previous weeks. Gold price is still down for the month. The aftermath of the FOMC decision, in which the Fed tapered QE3 by $10 billion to $75 billion, seem to have had short term effect on the prices of gold and silver. During last week, jobless claims sharply decreased by 42k to 338k. This news may have contributed to the slight recovery of the USD against the Aussie, CAD and Yen during last week. Next week, much like last week, the volatility of precious metals might rise on account of the low trading volume. Back in 2012 and 2011, the volatility of gold and silver was high. Here is a short breakdown for December 30th to January 3rd including: U.S pending home sales, U.S manufacturing PMI, China’s manufacturing PMI, EU monetary development, U.S consumer confidence, and U.S. jobless claims.
The price of gold increased by 0.81% last week; on the other hand, the average price reached $1,206.18 /t. oz which was 1.3% lower than last week’s average rate.
The price of silver also rose by 3.07%; conversely, the average weekly rate was $19.64/t oz, which was 0.26% below last week’s rate.
Herein is a short overview showing the main reports and events that will come to fruition during December 30th and January 3rd and may affect precious metals prices.
Let’s breakdown the main events of reports by leading economies:
Following the aftermath of the FOMC meeting and the mini-tapering, the strong adverse reaction to this decision – gold and silver plummeted during that week – may have been a bit an overreaction. The gold and silver slightly recovered last week and the low volume of trade could allow this recovery to continue on this low thrill week.
This week several reports will be released including: pending home sales, consumer confidence, manufacturing PMI and jobless claims; they could have some moderate effect on US dollar and precious metals prices.
The Euro didn’t do much last week and slightly appreciated against the USD. Conversely, other currencies such as Aussie dollar and Japanese yen depreciated against the USD. The strengthening of the Euro may have slightly contributed to rally of gold and silver prices. Next week, several reports will come out next week including EU monetary development, and Spain’s employment and manufacturing PMI reports. The upcoming reports could slightly affect the Euro/ USD, and, in the process, may also moderately affect gold and silver. The linear correlation between Euro/USD and gold price was 0.14 during December – a positive but weak correlation.
India and China
China’s economy hasn’t improved much in the past several months; HSBC will update its latest manufacturing PMI index. If the index declines, this could negatively affect prices of commodities: This may soften the future demand of China for commodities.
During last week, the Indian Rupee slightly appreciated again against the USD. This trend could positively affect the demand for gold and silver in India.
Finally, gold holdings of SPDR gold trust ETF declined again by 1.58% last week. The ETF was also down by 40.69% for the year (up-to-date). Current gold holdings are at 801.22 tons. If the ETF’s gold holdings continue to fall, this may signal the demand for gold as an investment is softening.
In conclusion, this week gold and silver might continue their last week’s rally: The low volume of trade could keep the recent upward trend. Nonetheless, the ongoing decline in demand for gold and silver as investments are likely to maintain their prices close to their current levels. Therefore, for the last week of the year I remain neutral on gold and silver.
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