The prices of gold and silver continued their downward trend last week. Their recent fall coincided with the strengthening of the US dollar against the Euro. In the U.S, the Non- farm payroll report was released and was better than anticipated: 204k jobs were added in October, which was even more impressive considering the government shutdown, which, according to some estimates, resulted in 130k jobs lost. This news reignited the speculations around the Fed’s next move and the progress of the U.S economy. Further, the US GDP grew by 2.8% during the third quarter, which was also better than expected. The other big headline from last week was the ECB’s decision to reduce its cash rate to its lowest level of 0.25%; this news pulled down precious metals prices and rallied the US dollar against the Euro. Will gold and silver prices continue to fall this week? Here is a short outlook for November 11th to November 15th including: U.S industrial production, German GDP for the third quarter, China’s new loans, U.S federal budget balance, Yellen testifies, ECOFIN summit, and U.S. jobless claims.
The price of gold decreased by 2.19% last week; moreover, the average price reached $1,306.70 /t. oz which was 2.24% below last week’s average rate. Gold ended the week at $1,284.50 /t. oz.
The price of silver plunged by 2.38%; the average weekly rate was $21.61/t oz – 3.18% fall from last week’s rate.
Herein is a short overview showing the main reports that will be published between November 11th and November 15th and may affect silver and gold prices.
This upcoming week, let’s review the main reports and events that will come to fruition divided by the leading economies:
Last week’s U.S GDP and NF payroll report were better than expected, which contributed to the rally of the US dollar and may dragged down gold and silver prices. The U.S progress may have rekindled the speculations around the Fed tapering QE3 in December.
Despite the reignited speculations over the next FOMC meeting, in Google search the word tapering has only slightly increased and has yet to reach its high levels in September as indicated in the chart below:
The chart shows the trending in Google for the term tapering.
The upcoming U.S data including industrial production, trade balance, and jobless claims could offer some additional information regarding the developments of the U.S economy.
If these reports meet the current expectations, they could continue to pull up the USD and thus drag down gold and silver.
The Euro depreciated again against the USD during last week. The ECB’s rate decision and the strong progress of the U.S economy have pressured down the Euro. Next week, several updates and events will take place next week: EU, German and France’s GDP for the third quarter and EU Summits. These events and reports could also affect the Euro/ USD.
India and China
China’s economy has been slowly recovering, which may have curbed down the drop in commodities prices in recent weeks. The Chinese industrial production and CPI rose last month, which suggests that the Chinese economy is heating up. Next week, China’s new loans monthly update will be released. If it shows progress in China’s economy, it could indicate a potential rise in demand for commodities in China.
In India, the ongoing wedding and festival season is likely to keep the demand for gold and silver robust. Conversely, the sharp depreciation of the Indian Rupee against the USD during last week may have cut down the growth in demand for gold and silver.
Finally, gold holdings of SPDR gold trust ETF slightly rose for the first week in the past ten consecutive weeks. Nonetheless, during the month, the ETF’s gold holdings decreased by 0.41%. The ETF was also down by 35.71% for the year (up-to-date). Current gold holdings are at 868.418 tons. If the ETF’s gold holdings continue to pick up, this may signal the demand for gold as an investment is picking up. A note: this is an ETF that represents only a portion of the demand for gold as investment so the developments in this ETF’s holdings are more a signal rather than the entire gold investment market.
In conclusion, the progress of the U.S economy as indicated in the recent economic reports including NF payroll, jobless claims and GDP for third quarter is likely to keep the strong US dollar. Moreover, the latest downgrade of France’s credit rating could also weaken the Euro/USD, which tends to be correlated with precious metals prices. If U.S economy continue to progress, it could keep this recent upward trend of USD, which is likely to weaken bullion and pressure down their prices. Therefore, my bet is that precious metals are likely to slowly fall in the near future. Nonetheless, several factors could play in favor of gold and silver including the strong demand for precious metals in Asia and the recent rise in demand for GLD’s ETF, which might indicate a recovery in demand for gold as an investment. These factors could curb the recent downward trend of gold and silver.
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