Gold and Silver Forecast for February 24-28

Silver and gold rallied again during last week. The recent U.S reports may have contributed to the slow recovery of precious metals: housing starts and building permits fell by 16% and 5.4%, respectively, during January; existing home sales dropped to 4.62 million in January; Philly fed index decreased from +9.4 to -6.3 in February; jobless clams slipped by 3k to reach 336k. The minutes of the last FOMC meeting didn’t reveal much more information regarding the future plans of the FOMC. In China, the flash PMI for February declined to 48.3 – the lowest level in months. In the forex market, the Canadian dollar, Aussie dollar and Japanese yen decreased against the USD, while the Euro moderately appreciated. This mixed trend may have contributed to the little rise in the prices of gold and silver. For the week of February 24th to 28th, several reports and events will be released such as: U.S new and pending home sales, U.S GDP for the fourth quarter, China’s manufacturing PMI, EU monetary development, U.S consumer confidence, Australia Private New Capital Expenditure and Canada’s GDP.

The price of gold increased by 0.4% last week; moreover, the average price reached $1,320.94/t. oz which was 1.94% higher than last week’s average. Gold ended the week at $1,323.7 /t. oz.

The price of silver also rose by 1.7%; further, the average weekly rate was $21.73/t oz, which was 6.1% above last week’s price.

Herein is a short overview showing the main decisions, reports and events that will unfold during February 24th to 28th and may affect precious metals prices.

Let’s breakdown the main events by leading economies:

U.S

Last week’s release of the minute of the FOMC’s meeting back in January didn’t offer much more information regarding the FOMC’s next steps that was stated in Janet Yellen’s testimony in Congress earlier this month. Janet Yellen will give another testimony this week on February 27th, in front the Committee on Banking, Housing, and Urban Affairs, U.S. Senate. The title of her testimony is Semiannual Monetary Policy Report to the Congress. This testimony is likely to offer similar information to the one provided in her previous testimonies. Looking forward, the next FOMC meeting will be held between March 18 and 19. Until then, the progress of the U.S economy could affect the next FOMC’s decision regarding tapering further QE3.

This week, several reports will come out including: new and pending home sales, core durable good, consumer confidence index, GDP for the fourth quarter and jobless claims. If these reports show slower progresses in the U.S economy, they could positively affect the prices of precious metals. Further, the ongoing depreciation of the US dollar against Euro may have also helped pull up precious metals. Conversely, the Aussie dollar and Japanese yen slipped against the USD. Thus, if the U.S dollar continues to strengthen against the yen and Aussie dollar; this could moderately pull down the prices of gold and silver. The correlation between Euro/USD and precious metals had strengthened in recent weeks (during January/February the linear correlation was 0.50 strong correlation; the correlation between USD/YEN and gold is -0.52). Finally, the US equities market slightly rallied last week. If this trend persists, it could drag back down alternative investments such as gold and silver.

Europe

This week, the Euro Area Monetary Development, German Retail Sales, EU Economic Forecast (flash report), German Business Climate Index, EU CPI and unemployment rate will be released. These reports and events could affect the Euro/USD, which could play a secondary role in the progress of the prices of precious metals.

India and China

During the previous week, the Indian Rupee depreciated against the US dollar. If this trend persists, it could adversely affect the demand for precious metals in India.

In China, the manufacturing PMI (final estimate) report will be released. If the Chinese economy continues to slow down, this might imply the demand for commodities in this country is falling, which could also curb the recent recovery of precious metals.

 

Finally, during last week, gold holdings of SPDR gold trust ETF changed direction and fell for the first time in four weeks by 0.37%. The ETF is down by nearly 5.32% in the past couple of months and by 0.36% for the year (UTD). Gold holdings were at 798.308 tons by the end of last week. If the ETF’s gold holdings continue to fall, this may signal the demand for gold as an investment is diminishing.

In conclusion…

The ongoing slowdown in the U.S economy especially in housing and labor markets might be enough to improve the demand for investments that are considered safe haven such as gold and silver.  The upcoming U.S related reports could offer some additional insight regarding the changes in the economy. If the GDP for the Q4 report falls below the early estimate it could drag down the USD and thus also help rally precious metals. But there are also signs of a potential change in the recent rally of gold and silver: The recent modest recovery of the U.S stocks markets, the appreciation of the USD against the Aussie and yen, the drop in GLD gold holdings for the first time this month. These changes might suggest the recent rally of gold and silver could slow further down or perhaps even change course this week. My guess is gold and silver prices could change course and fall in near future; moreover, if China’s manufacturing PMI also shows a sharp fall to below 50, this could also pull down gold and silver; unless of course the upcoming U.S GDP report and core durable goods disappoint – in such a scenario precious metals could extend their rally a little while longer. Therefore, I remain neutral on gold and silver for this week.

For further reading: