Gold and Silver Prices Outlook for May 2012

The bullion market has slowed down during the past three months: during February gold declined by 1.67%, during March by 2.3% and during April by 0.42%. Silver hasn’t done any better. The recent FOMC meeting didn’t affect Precious Metals at the end of April. Since the Fed didn’t introduce additional monetary steps to jump-start the U.S economy and the situation in the Euro Zone hasn’t improved the precious metals prices much like the Euro/USD haven’t  moved much during the month. Will this stalemate in the precious metals market continue in May?

Let’s examine the precious metals market for April and provide a short outlook for gold and silver for May 2012.

Gold and Silver April 2012

Gold and silver prices decreased during most of April, even though for several parts of the month there was an unclear trend for both metals as they have zigzagged from gains to losses.


Gold (as of April 27th) declined by 0.42%; silver, even more than gold, dropped by 3.3%.

Let’s divide April into two parts: the table below divides the month to two with the breaking point at April 12th; I divide the month on April 12th because that was after the effects of the U.S employment report and U.S jobless claims came into play; during the first part of April, gold edged up by 0.5% and silver price by 0.1%. During the second part of April, silver declined by 3.4% and gold price by 0.9%.

Gold price outlook and Silver prices FORECAST  us dollar euro percent change  April 2012 May

During the first part of April, the U.S dollar depreciated against the Canadian dollar and Australian dollar, but appreciated against the Euro; the first two currencies are usually strongly correlated with gold and silver prices. During the second part of the month, the U.S dollar depreciated against not only the Aussie dollar and Canadian dollar but also the Euro; this shift might have adversely affected gold and silver prices during the second part of the month.

The chart below presents the developments of gold and silver during April, in which the prices are normalized to 100 on March 30th 2012.

Gold prices forecast & silver price outlook April May 2012

The next chart shows the changes in the ratio of gold to silver (gold price/silver price) during the month; the ratio has had an unsteady but moderate upward trend. The ratio rose as silver price has underperformed gold price. In the last week of April the ratio ranged between 53 and 54.

Gold and Silver prices ratio 2012 May

Here are several factors that may have contributed to the fall of Precious Metals during April:

  1. The concerns during the first couple of weeks over the Spanish debt crisis;
  2. The FOMC decision to keep its policy unchanged (see below for more);
  3. The fall of the Euro/USD during the first part of the month after the Spanish budget problems emerged;
  4. The low growth rate (8.1%) of China‘s GDP in the first quarter of 2012;
  5. The decline in U.S long term securities yields during most of the month (see below for more on this issue);
  6. The decline in the S&P500 and oil that are strongly and positively correlated with the changes of bullion .

Here are several factors that may have curbed the fall of gold and silver during the month:

  1. The U.S labor report of April showed a modest rise in U.S. employment of only 120k (the expectations were 200k); this report is usually negatively correlated with Precious Metals (see below);
  2. The ongoing FOMC pledge to keep rates low until late 2014;
  3. The U.S. federal deficit grew by 198 billion during March 2012; this expansion raised the uncertainty level in the market;
  4. The news regarding the moderate contraction  in the U.S. housing market (including the decline in housing starts);

Outlook for Precious Metals – May 2012 ( the full analysis is at the complete report)

In conclusion, I speculate gold and silver will not do a lot better than they did in the last couple of months. The ongoing concerns regarding the stability of the EU may strengthen the U.S dollar. Furthermore as long as the U.S economy is growing at a faster rate than the EU, the U.S dollar will probably remain strong against the Euro. On the other hand as long as the market is stagnating with the Euro/USD not moving out of its range, major commodities including gold and silver will probably also remain flat. Since the FOMC kept the door open on another stimulus plan, the minutes of the meeting might offer some insight that could stir up the markets. Finally if the U.S labor report won’t show a big improvement and the U.S economic growth rate might slow down (e.g. slowdown in housing market, manufacturing, Philly Fed etc) then the U.S dollar may trade down which will bring up again gold and silver prices. 

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