The prices of gold and silver have resumed their downward trend last week, and they have plummeted to their lowest level in months. Their recent decline coincided with the weakness of several leading currencies such as Japanese yen and Aussie dollar against the US dollar. Last week’s publication of the minutes of the FOMC meeting revealed that FOMC Members think it’s important to convey to the public that future decisions to taper QE3 won’t result in a rise in the Fed’s cash rate. The cash rate is likely to remain at its lowest level until the economic conditions prevail including unemployment rate falls below 6-6.5%, and longer-term inflation expectations remain anchored. Nonetheless, the potential of tapering QE3 in the near future may have contributed to the fall of gold and silver prices. Moreover, the low inflation may have also steered away investors from bullion to other investments. Will gold and silver prices continue to fall this week? Here is a short outlook for November 25th to November 29th including: U.S housing starts, U.S pending home sales, China’s manufacturing PMI, EU monetary development, German retail sales, U.S consumer confidence, German Consumer Climate, Canada’s GDP by industry, and U.S. jobless claims.
Gold price declined by 3.36% during last week; further, the average price reached $1,258.3 /t. oz which was 1.61% below last week’s average rate. Gold ended the week at $1,244.10 /t. oz.
The price of silver also plummeted by 4.17%; the average weekly rate was $20.11/t oz, which was 3.28% below last week’s.
Herein is a short overview showing the main reports and events that will come to fruition during November 25th and November 29th and may affect gold and silver prices.
Moreover, the video below shows a breakdown of the events that will come into play during next week any may affect the direction of precious metals.
Let’s breakdown the main events of reports by leading economies:
The last minutes of the FOMC meeting offer some hints that the Fed isn’t likely to raise the interest rate anytime soon. Nonetheless, the tapering of QE3 is just a matter of time and the market already expects it will start in the coming months. In the meantime, the low inflation continues to suggest the U.S economy isn’t progressing but also the fear of inflation hasn’t become a reality. Therefore, the demand for gold and silver continues to diminish. Nonetheless, if the U.S economy continues to show little progress, it could eventually pull up the demand for gold and silver. Next week, the upcoming U.S data including housing starts, building permits, consumer confidence, pending home sales, core durable goods, and jobless claims could offer some additional information regarding the progress developments of the U.S economy. These reports aren’t likely to stir up the precious metals market, but if they don’t meet current projections, they could pull slightly up the prices of gold and silver.
The Euro continued to strengthen against the USD even though other currencies such as Aussie dollar and Japanese yen fell against the USD. The recent recovery of the Euro didn’t seem to curb down the drop of gold and silver prices. Next week, several reports will come out next week including EU monetary developments report, German retail sales, Germany’s unemployment and Gfk German Consumer Climate Survey. These reports could affect the Euro/ USD, and may also affect precious metals prices. The linear correlation between Euro/USD and gold price is 0.68 – a positive and strong correlation.
India and China
China’s economy isn’t showing much progress in the past several months. The last HSBC manufacturing PMI (flash estimate) showed a drop in the index; this could suggest the Chinese economy is progressing at a slower pace. If the upcoming manufacturing PMI report confirms this change in direction, this could adversely affect the prices of commodities including gold and silver.
In India, the Indian Rupee changed direction and sharply depreciated against the USD during the previous week; this shift may have weakened the demand for precious metals. It seems the wedding and festival season isn’t enough to pull up the prices of gold and silver.
Finally, gold holdings of SPDR gold trust ETF sharply fell by 1.56% last week. Moreover, during the month, the ETF’s gold holdings declined by 2.27%. The ETF was also down by 36.91% for the year (up-to-date). Current gold holdings are at 852.209 tons. If the ETF’s gold holdings continue to decline, this may signal the demand for gold as an investment is diminishing.
In conclusion, the slow news week in the U.S, the little progress in China and India, and the slow movement of the Euro are likely to keep the prices of gold and silver stable during next week. Therefore I remain neutral regarding gold and silver.
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