The prices of gold and silver bounced back and spiked during last week. The U.S government shutdown ended with a short-term solution; the budget talks will continue with a revised deadline of January 15th; the debt ceiling was also pushed up but will only last until end of February to mid-March. These recent events may have contributed to the rally of gold and silver. These latest developments may have closed the door on the FOMC tapering the bond purchase program anytime soon. Will gold and silver prices continue their recent recovery this week? Here is a short outlook for October 21st to October 25th including: U.S non-farm payroll report, EU monetary developments, German Ifo business climate, U.S home sales reports, BOC rate decision, China and EU’s manufacturing PMI flash updates, and U.S. jobless claims.
During last week, the price of gold increased by 3.64%. On the other hand, the average price reached $1,293.7 /t. oz which was 0.81% below the previous week’s average. Gold ended the week at $1,314.30 /t. oz. The price of silver also increased by 3.07%; on the other hand, the average weekly rate was $21.88/t oz, which was 1.94% above last week’s.
Herein is a short overview showing the main reports that will be published between October 21st and October 25th and may affect gold and silver prices.
For the forthcoming week, let’s review the main publications and events divided by the leading economies:
The shutdown of U.S government may have ended by the uncertainty around the future of the progress of the U.S economy remains high. In the upcoming three months both houses and President Obama will need to reach an agreement on next year’s budget and raising the debt ceiling. If not, we will have a rerun of similar proportions in January and February as we had in the past week. This uncertainty could also affect the FOMC’s monetary decision and hold back the FOMC from tapering QE3 in the near future until U.S policymakers reach an agreement on the fiscal policy. In the meantime, this could play in favor of precious metals and perhaps even raise the demand for gold and silver as investment tools. This coming week several reports will be published including: Non-farm payroll report, new and existing home sales, core durable goods, and jobless claims. If these reports, mainly the employment report, show little progress or don’t meet the current expectations, this could pressure up the prices of gold and silver.
The Euro sharply rose against the USD on a weekly scale. The recent rally in the Euro/USD may have resulted from the developments in the U.S vis-à-vis the government shutdown. The correlations between Eur/USD and precious metals prices have strengthened in recent weeks. Thus, the recent recovery of the Euro coincided with the rally of gold and silver. Next week, several reports will come out including: Manufacturing PMI and monetary developments. These reports could also affect the Euro.
During last week, the Canadian dollar appreciated against the USD by 0.61%. The rally of gold and silver coincided with the recovery of this currency pair. The CAD/USD has had a strong correlation with precious metals, as indicated in the chart below.
If these correlations hold up, then the recovery of the Canadian dollar could keep coinciding with the rise gold and silver prices.
Next week, Bank of Canada will decide on its interest rate, which currently stands on 1%. The current expectations are that the Bank will leave the rate unchanged. But if BOC changes its policy, this could result in the depreciation of the Canadian dollar, which might also curb down the recent rally of precious metals.
India and China
The wedding and festival season in India is likely to push up the demand for gold and silver. The demand for silver in the past several months has reached record levels and the recent seasonal change is likely to push further up the demand for these metals. Furthermore, the Indian Rupee continues to rally against the USD. If the Rupee keeps appreciating against the USD, this could positively affect the demand for gold and silver in India. In China, the flash manufacturing PMI monthly update will come out. If the report shows growth in the manufacturing conditions, this could positively affect the prices of commodities including gold and silver.
Finally, gold holdings of SPDR gold trust ETF fell again for the seventh consecutive week. During the month, so far, the ETF’s gold holdings declined by 2.62%. The ETF was also down by 34.69% during the year (up-to-date). Current gold holdings are at 882.227 tons – the lowest level in the past several years. If the ETF’s gold holdings keep falling, this will signal the demand for gold as an investment continues to diminish.
The U.S will continue to lead the way in its impact on the progress of gold and silver. Next week, the main focus will get back to reports mainly employment and housing data. If these reports don’t meet the market expectations, the bullion market could benefit from these developments, so that precious metals will resume their upward trend. The uncertainty around the fiscal policy will also benefit the bullion market and may keep gold and silver from plummeting down as they did in previous months. Finally, the Asian market including China and India could also have some positive effect on the bullion market and keep gold and silver at their current price levels.
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