The prices of gold and silver changed direction and tumbled down last week. Their recent plunge coincided with the appreciation of the US dollar against the Euro and Aussie dollar. The FOMC meeting didn’t offer any new headlines, but some analysts have speculated based on the wording of the statement that the FOMC might be start tapering QE3 in December. In other news, jobless claims fell by 10k to 340k; U.S manufacturing PMI slightly rose to 56.4 in October – a 0.2 percentage point gain. ADP reported a 130k gain in payroll jobs in October. In China’s the manufacturing PMI rose in October – the final PMI grew to 51.4 and the HSBC PMI increased to 50.9; these reports suggest the manufacturing conditions in China are growing in a faster pace. Will gold and silver prices change direction and rally this week? Here is a short outlook for November 4th to November 8th including: U.S non-farm payroll report, rate decisions of ECB, RBA and BOE, China’s new loans, U.S GDP for the third quarter, Ben Bernanke speaks, Canada and Australia’s employment reports, and U.S. jobless claims.
The price of gold plummeted by 2.89% last week; further, the average price reached $1,336.64 /t. oz which was 0.16% below last week’s average. Gold ended the week at $1,352.30 /t. oz.
The price of silver also tumbled down by 3.42%; moreover, the average weekly rate was $22.32/t oz, which was 1.23% below last week’s rate.
Herein is a short overview showing the main reports that will be published between November 4th and November 8th and may affect silver and gold prices.
This forthcoming week, let’s review the main reports and events that will come to fruition by the leading economies:
Last week’s FOMC meeting raised again the speculations about tapering QE3, which may dragged gold and silver prices. But since these speculations aren’t founded they could result in a sharp shift in this week’s precious metals’ directions.
Despite the hype over the recent FOMC meeting, the talk over tapering QE3 hasn’t reached its high levels from back in September as indicated in the chart below:
The chart shows the changes in Google search for the term tapering. Based on the chart, the trend rallied in recent weeks but is far off the peak it reached in September.
The upcoming U.S data including non-farm payroll report, non-manufacturing PMI, factory orders and GDP for the third quarter could offer some additional information regarding the progress of the U.S economy including labor, manufacturing and non- manufacturing markets. These reports could also affect December’s FOMC meeting isn’t regarding maintaining or not the Fed’s bond purchase program at $85 billion a month.
If these reports, mainly the non-farm payroll and GDP for the third quarter, don’t meet the current expectations, they could drag back down the USD and thus pull up gold and silver.
The Euro sharply depreciated against the USD during last week. The ongoing recovery of the USD is plausibly related to FOMC statement and progress of the U.S economy. The correlations between Eur/USD and precious metals prices have strengthened during recent weeks. Thus, the Euro’s decline coincided with the drop of gold and silver. Next week, several reports and events will take place including: ECB rate decision, German Industrial Production, and German factory orders. These reports could also affect the Euro/ USD.
India and China
Next week, the CPI, new loans, trade balance and industrial production will come out. If they show progress in China’s economy, they could indicate a potential rise in demand for commodities in China including gold and silver. The recent news is that China’s demand for gold continues to rise and over 2,200 tons of gold imported in the past couple of years.
In India, the wedding and festival season is likely to keep the demand for precious metals strong. Conversely, the Indian Rupee weakened against the USD in the past week, which could curb the growth in demand for gold and silver prices.
Finally, gold holdings of SPDR gold trust ETF declined again for the ninth consecutive week. During last month, the ETF’s gold holdings decreased by 4.38%. The ETF was also down by 35.87% for the year (up-to-date). Current gold holdings are at 866.317 tons – the lowest level in years. If the ETF’s gold holdings keep falling, this may signal the demand for gold as an investment continues to falls. Keep in mind, however, this is an ETF that represents a portion of the demand for gold as investment so the changes in this ETF’s holdings are more signal rather than the entire gold investment market.
In conclusion, the recent developments in U.S including some progress in the U.S economy and the publication of the FOMC statement may have helped pull down gold and silver. But this trend could change direction and precious metals may rally, if the upcoming U.S reports show little progress and thus reduce the odds of tapering QE3 in December. Conversely, the Eur/USD could resume its downward trend especially if ECB changes its policy, which could also adversely affect gold and silver. Finally, the ongoing strong demand for gold and silver in Asia is likely to keep the prices of gold and silver from reaching new lows.
For further reading: