Gold and silver continued to zigzag in an unclear trend during the previous week despite the many news items on last week’s agenda: The recent news from Cyprus is that its parliament passed on the bailout plan, which isn’t likely to satisfy EU and IMF officials. During last week, this development may have contributed to the rally of safe haven investments and also dragged down the Euro. The FOMC meeting didn’t result in big headlines and thus didn’t affect precious metals. Moreover, the mixed trend in the forex market may have contributed to the mixed trend in commodities markets. Will gold and silver rise next week? Here is a short outlook for March 25th to March 29th; this includes a fundamental analysis of the main reports, events and decisions that will unfold during the week and may affect precious metals including: Cyprus bailout plan, U.S new home sales, core durable goods, Canada’s CPI, German retail sales, Great Britain current accounts, Bernanke’s speech, RBA Governor speech, and U.S. jobless claims.
Gold rose during last week by 0.85%; moreover, during said week, the average rate reached $1,608.66 /t. oz which was 1.28% above last week’s average rate. Gold ended the week at $1,606.1 /t. oz.
On the other hand, silver slipped during last week by 0.54%; further, the average rate edged down by 0.14% to reach $28.86/t oz compared to last week’s average.
The Euro declined against the U.S dollar by 0.67% (on a weekly scale); the Australian dollar, on the other hand, appreciated against the U.S dollar by 0.34%; the yen appreciated against the U.S dollar by 0.86%. The correlations between these currencies pairs and precious rates remained weak: during March the correlation between USD/Yen and gold reached -0.27; the correlations between Australian dollar /USD and gold reached 0.23. These correlations suggest the recent developments in the forex markets may have had little effect on the developments in gold and silver markets. Despite the weak relations, if the Euro and other “risk” currencies will continue to trade down during the coming weeks, they might drag down gold and silver.
The weekly report below presents a broad overview of the main reports, speeches and publications that may affect gold and silver between March 25th and March 29th. These include the above-mentioned news items such as: U.S new home sales, core durable goods, Canada’s CPI, German retail sales, Great Britain current accounts, Bernanke’s speech, RBA Governor speech, and U.S. jobless claims (just to name a few).
In conclusion, the whole Cyprus debacle and its bailout plan will keep occupying the financial markets and will generate guesses about the future of Cyprus. Despite this news the Euro only slightly declined during last week and the price of gold only slightly rallied. The demand for safe haven investments is likely to keep falling as long as the U.S economy will show signs of progress. The FOMC meeting didn’t stir up the financial markets as indicated in the table below.
So the upcoming speech of Bernanke also isn’t likely to stir up the bullion markets. The Fed’s ongoing asset purchase program continues to raise the U.S money base, but doesn’t seem to rally the demand for precious metals as the previous programs (QE1, QE2) did in the previous years. The SPDR gold trust ETF holdings continue to dwindle and lost nearly 3% of the ETF gold holdings. This serves as another indication for the drop in demand for gold as a safe haven investment. On the other hand, the decline in long term securities yields during the month implies the market sentiment is becoming more bearish. This mixed sentiment that shifts from bearish to bullish almost on a weekly basis is keeping the precious metals markets shifting in an unclear trend. In the U.S, the main reports to be published this week include: new home sales, pending home sales, core durable goods, GDP for Q4 (final estimate) and jobless claims; these reports could affect the USD and precious metals prices. If the reports will continue to show signs of progress, they could pull down precious metals.
The appreciation of the Japanese yen during the week may have affected precious metals; if it will continue, then bullion prices might also follow and rally.
If the gold and silver trading volumes will decline, this could lower their price volatility during the upcoming week. In India, if the Rupee will continue to decrease against the USD, as it did during last week; it may adversely affect the demand for gold in India. Finally, if the Euro, Aussie dollar, Canadian dollar and other currencies will depreciate against the USD, they could also adversely affect gold and silver. Based on the above, my guess is that gold and silver will slightly decline next week.
For further reading:
- What Could Impede This Gold Company?
- Weekly Outlook of Financial Markets for March 25-29
- Gold and Silver Outlook for March
- Gold and Silver Yearly Outlook For 2013