The gold market remained stagnate as gold price remained nearly unchanged on a weekly scale. The price of silver, however, resumed its descent of recent weeks and tumbled down again during last week. In the forex market some currencies such as Euro strengthened against the US dollar. Others including the yen and Aussie dollar weakened against the USD. Several U.S reports didn’t show much progress to the economy: The trade balance widened due to higher imports and lower exports, which suggest the U.S economy hasn’t improved; Jobless claims slightly declined by 2k to reach 339k. Further, in Bernanke’s recent talk in a teacher town hall in D.C he reiterated that the Fed will remain alert to prevent the U.S inflation from falling below 2%. Such dovish remarks might have rallied precious metals prices by the end of last week. During the month, so far, both precious metals prices have declined. Nonetheless, the weakness in the precious metals markets in the past several months didn’t change Paulson’s position: He kept his SPDR Gold trust (GLD) position unchanged in the third quarter. Will gold and silver prices recover this week? Here is a short forecast for November 18th to November 22nd including: Bernanke’s speech, minutes of the FOMC meeting, U.S CPI and PPI, German Ifo business climate, U.S existing home sales, Canada’s retail sales, China’s manufacturing PMI flash reports, Philly fed index, and U.S retail sales report.
The price of gold edged up by 0.23% last week; the average price reached $1,278.88 /t. oz which was 2.13% below last week’s average rate. Gold ended the week at $1,287.40 /t. oz.
On the other hand, silver price continued its downward trend and lost 2.77% of its value; moreover, the average weekly rate was $20.79/t oz, which was 3.80% below last week’s price.
Herein is a short overview showing the main reports that will be published between November 18th and November 22nd and may affect silver and gold prices.
This upcoming week, let’s review the main reports and events that will come to fruition divided by the leading economies:
Last week didn’t offer much inflation regarding the changes in the U.S economy. The main issue continues to revolve around the Fed’s next move. The recently ignited speculations over the next FOMC meeting may stir up the precious metals markets. Next week, Bernanke’s speech and the minutes to the FOMC meeting could offer some information regarding the Fed’s future steps. I still think the Fed won’t taper QE3 in the upcoming December meeting. Nonetheless, if the minutes or Bernanke’s speech present some hints for a December tapering, this could drag further down gold and silver prices.
The upcoming U.S data including Philly fed survey, retail sales, existing home sales, CPI, PPI and jobless claims could offer some additional information regarding the developments of the U.S economy. If these reports meet the current expectations, they could positively affect the USD and thus pressure down gold and silver.
The Euro changed direction and appreciated again against the USD last week. The recent recovery of the Euro may have partly contributed to the slight rally of gold price. Next week, several reports will be released next week including EU, German and France’s manufacturing monthly updates a. These events and reports could also affect the Euro/ USD. The linear correlation between Euro/USD and gold price is 0.66 – a positive and strong relation.
India and China
China’s decision to relax its one child policy may also benefit its economy and augment its long term growth rate. Until then the upcoming reports regarding the manufacturing PMI could offer some information regarding the progress of the Chinese economy. If the report presents further progress in China’s economy, it could indicate a potential increase in demand for commodities in China.
In India, the Indian Rupee made a comeback and sharply appreciated against the USD during last week; this change may have improved the demand for gold and silver. Further, the ongoing wedding and festival season is likely to keep the demand for gold and silver strong.
Finally, gold holdings of SPDR gold trust ETF changed direction and fell by 0.31% last week. Moreover, during the month, the ETF’s gold holdings declined by 0.72%. The ETF was also down by 35.91% for the year (up-to-date). Current gold holdings are at 865.713tons. If the ETF’s gold holdings continue to fall, this may signal the demand for gold as an investment is diminishing. A note: this is an ETF that only represents a portion of the demand for gold as an investment. Therefore, the weekly shifts in this ETF’s holdings only serve as a signal for the changes in demand for gold as investment and not the changes in the entire gold investment market.
In conclusion, the progress of the U.S economy as indicated in the recent economic reports including NF payroll, jobless claims and GDP for third quarter is likely to keep the strong US dollar. Moreover, the latest downgrade of France’s credit rating could also weaken the Euro/USD, which tends to be correlated with precious metals prices. If U.S economy continue to progress, it could keep this recent upward trend of USD, which is likely to weaken bullion and pressure down their prices. Nonetheless, several factors could play in favor of gold and silver including the strong demand for precious metals in Asia and the recent rise in demand for GLD’s ETF, which might indicate a recovery in demand for gold as an investment.
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