Gold and silver prices continued to trade down during last week. The speculations around the future moves of the FOMC regarding its monetary policy including the QE3 program time-frame may have contributed to the rise in the bearish market sentiment towards precious metals. Several U.S reports came out last week: the jobless claims increased by 20k to reach 362k; CPI remained unchanged in January; Philly Fed index fell again in February. Housing starts declined in January by 8.5%. In Europe, the Euro currency declined last week along with other currencies such as the Canadian dollar against the USD. The developments in the forex markets and the reports from the U.S may have partly affected precious metals prices. Following these recent developments, will gold and silver continue to fall next week? Here is a short outlook for February 25th to March 1st; this includes a fundamental analysis of the main reports and events that may affect metals prices including: U.S new home sales, core durable goods, second GDP fourth quarter estimate, Canada’s GDP, German consumer climate, Italian Parliamentary Election, Bernanke testifies, U.S, China and GB manufacturing PMI, EU monetary developments, and U.S. jobless claims..
Gold plummeted again during the previous week by 2.27%; moreover, during said week, the average rate reached $1,588.22 /t. oz which was 2.99% below last week’s average. Gold ended the week at $1,572.3 /t. oz.
Silver also tumbled down during last week by 4.65%; further, the average rate decreased by 5.2% to reach $29.01/t oz compared to last week’s average.
The Euro also declined against the U.S dollar by 1.24% (on a weekly scale); the Canadian dollar also depreciated against the USD by 1.5%; the Australian dollar, on the other hand, inched up against the U.S dollar by 0.15%. The correlations between these currencies pairs and precious metals rates have remained stable: during January-February the correlation between USD/CAD and gold was -0.21 and between Australian dollar /USD and gold the correlation reached 0.35. These correlations suggest the recent developments in the forex markets may have had a modest effect on the direction of precious metals markets. These correlations might strengthen in the coming days. Thus, if the Euro and other “risk” currencies will further depreciate during the following days; this might pull down 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 25th and March 1st. These include the above-mentioned news items such as: U.S new home sales, U.S core durable goods, second GDP fourth quarter estimate, Canada’s GDP, Parliamentary Election, Bernanke testifies, U.S, manufacturing PMI, EU monetary developments, and U.S. jobless claims (just to name a few).
In conclusion, the speculations around the future steps of the FOMC may have contributed to the sharp fall in precious metals during last week. The forex markets may have also played a second chair in pulling down bullion rates. The trading volume of gold and silver rose in recent days; this trend coincided with the spike in the volatility of precious metals. If the trading volume will remain high, this could keep the price volatility of gold and silver during the upcoming week. The upcoming testimony of Bernanke at the Hill could raise the price volatility of precious metals especially if he will refer to the future steps of the Fed and the progress of the U.S economy. My guess, however, is that bullion rates won’t react to Bernanke’s testimony unless he will bring some new perspective or insight that wasn’t already extrapolated from the recent FOMC minutes. The Italian elections could affect the direction of the Euro. Moreover, the reports regarding the progress of Europe including German retail sales, and EU monetary development could affect not only the Euro but also commodities prices. If these reports will show signs of contraction, it could pull down the Euro and in the process also pressure down precious metals rates. The upcoming reports regarding the U.S economy including: new and pending home sales, GDP for Q4, core durable goods and jobless claims, could affect the USD and bullion prices: if these reports will show expansion in the U.S economy, they may pull down gold and silver. In India, if the Rupee will continue to depreciate against the USD, as it in recent weeks; it may adversely affect the demand for precious metals in India. Finally, if the Euro, Aussie dollar, Canadian dollar and other risk currencies will continue to depreciate against the USD, they could adversely affect gold and silver. Based on the above, my guess is that gold and silver will continue to decline next week.
For further reading:
- What Could Impede This Gold Company?
- Weekly Outlook of Financial Markets for February 25- March 1
- Gold and Silver Outlook for February
- Gold and Silver Yearly Outlook For 2013