Gold and Silver Prices Outlook for January 2014

The last FOMC meeting of the year ended with a mini-taper of $10 billion so that quantitative easing 3 will continue to purchase $75 billion a month of LTS and MBS. This decision may have had a moderate adverse effect on the prices of gold and silver. By the end of the month, both precious metals slightly declined. Moreover, on a yearly scale gold and silver tumbled down by 28.2% and 35.9%, respectively. Thus, precious metals recorded their worst annual performance in decades (yes you are reading it right in decades). Looking forward, will gold and silver continue to tumble on the first month of 2014? Let’s examine the upcoming events, decisions and reports that may affect precious metals; let’s start, however, with a short analysis of December.                                       

Gold and Silver Prices December 2013

Gold and silver prices declined mostly during the last few weeks of December. Their decline did coincide with the depreciation of the Euro, Aussie dollar and Japanese yen against the USD. By the end of December, the price of gold decreased by 3.85%; the price of silver, by 3.3%.

Let’s divide December into two parts: the table below divides the month at December 11th. This point is where the speculations regarding the tapering of QE3 further rose. I divide the month to demonstrate the shift in pace of gold and silver prices; during the first part of December, gold rose by 0.6%; silver, by 1.6%. During the second part of December, however, gold plummeted by 4.4%; silver price, by 4.8%.

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Gold and Silver dollar euro percent change January 2014

During the first part of December, the U.S dollar depreciated against the Euro but slipped against the Aussie dollar, Japanese yen and Canadian dollar; the Euro/USD and USD/Yen currency pairs are usually strongly correlated with gold and silver – in recent weeks, however, their relation diminished. During the second part of the month, the Japanese yen sharply depreciated against the US dollar.

The chart below presents the changes of gold and silver during December, in which the prices are normalized to 100 on November 29th 2013.

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Gold and silver forecast January 2014

The ratio of gold to silver (gold price/silver price) slightly fell during the month. The ratio decreased as silver price has out-performed gold price. During the month the ratio ranged between 61 and 63.

Here are several factors that may have adversely affected gold and silver prices during the month:

  1. The decision of the FOMC to mini-taper QE3 starting January;
  2. In the recent U.S non-farm payroll report, 203k jobs were added – this was close to estimate and may have slightly dragged down precious metals prices;
  3. The higher than expected correction to the U.S third quarter GDP – raised to 4.1%;
  4. The sharp depreciation of several currencies such as Aussie dollar and Japanese yen against the USD during December may have pulled down gold and silver;
  5. The approval of the U.S budget lowered the uncertainty of the U.S economy heading towards 2014 with respect to this issue;
  6. The decline in the number of U.S jobless claims during December;
  7. Most U.S reports were positive: Housing starts sharply rose by 22% during December; retail sales increased by 0.7%; manufacturing PMI rose to 57.3%; U.S consumer confidence index rose during the month. These reports suggest the U.S economy is progressing and thus may have dragged down precious metals;
  8. The ongoing rally of  U.S equity markets that serve as an alternative investment for gold and silver;

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