Gold and Silver Prices Outlook for February 18-22

Gold and silver prices plummeted last week, mainly by the end of the week. The new around the decision of big investors such as Soros and Bacon to reduce their holdings in gold related investments may have contributed to the sharp shift in the direction of gold and silver. In Europe, the news regarding the EU GDP, in which it had contracted by a sharper than expected rate, may have adversely affected not only the Euro but also commodities prices. The developments in the forex markets may have also had a moderate effect on precious metals. Following these developments, will gold and silver change course and rally or continue to trade down next week? Here is a short outlook for February 18th to February 22nd; this includes a fundamental analysis of the main report and decisions that may influence metals traders including: FOMC minutes, minutes of BOJ monetary policy meeting, EU manufacturing PMI, U.S housing starts, U.S CPI and PPI, Governor Stevens speaks, minutes of MPC meeting, and U.S. jobless claims.  

Gold tumbled down during last week by 3.4%; moreover, during said week, the average rate reached $1,637.24 /t. oz which was 2.12% above last week’s average. Gold ended the week at $1,609.5 /t. oz.

Silver also plummeted during last week by 5.06%; furthermore, the average rate decreased by 3.35% to reach $30.6/t oz compared to last week’s average.

The Euro remained virtually unchanged against the U.S dollar as it edged down by 0.04% (on a weekly scale); the Canadian dollar also slightly depreciated against the USD by 0.44%; the Australian dollar also depreciated against the U.S dollar by 0.14%. The correlations between these currencies pairs and bullion rates have moderately strengthened in recent days: during January-February the correlation between USD/CAD and gold was -0.27 and between Australian dollar /USD and gold the correlation reached 0.46. These correlations suggest the recent shifts in the forex markets may have had a moderated effect on the developments in precious metals markets. These correlations might strengthen in the days to follow. Thus, if the Euro and other “risk” currencies will change direction and appreciate during the following days; this might pull up gold and silver.

In the video herein there is a broad overview of the main reports, speeches and publications that may affect gold and silver between February 18th and February 22nd. These include the above-mentioned news items such as: FOMC minutes, U.S housing starts, U.S CPI, Governor Stevens speaks, and U.S. jobless claims (just to name a few).

In conclusion, the speculations around the recent move made by big investors may have also influenced traders to cut their exposure. The forex markets weren’t too volatile to warrant such a sharp fall in bullion rates. Moreover, no big fundamental changes had occurred last week to explain this sharp fall in gold and silver prices. Therefore, if last week’s decline was mostly speculative, precious metals are likely to bounce back at the beginning of the week. On Friday, the trading volume of gold and silver spiked to 283k and 97k, respectively. These were the highest trading volumes since last month. If the gold and silver trading volume will further rise, this could augment gold and silver prices’ volatility.

The upcoming minutes of the recent FOMC meeting could raise the price volatility of bullion if the minutes will reveal some unexpected insight. My guess, however, is that gold and silver won’t react to this report. The reports regarding the progress of Europe including German ZEW and manufacturing PMI could affect not only the Euro but also precious metals. If these reports will show signs of growth, it could pull up the Euro and in the process also pressure up bullion rates. The upcoming reports regarding the U.S economy including: Philly fed index, housing starts, CPI, PPI and jobless claims, could affect the USD and precious metals prices: if these reports will show expansion in the U.S economy, they may adversely affect gold and silver. In India, if the Rupee will continue to fall against the USD, as it did in last week; it may adversely affect the demand for gold in India. Finally, if the Euro, Aussie dollar, Canadian dollar and other risk currencies will appreciate against the USD, they could positively affect gold and silver. Based on the above, my guess is that gold and silver will moderately rally next week.

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