Gold and Silver Prices Outlook for September 2013

The precious metals market has heated up this summer as both gold and silver prices spiked during August. Will the recent rally hold up and keep bullion prices elevated or will gold and silver prices change direction and fall? Many precious metals investors are waiting for the next FOMC meeting, in which the Fed may announce it will start tapering its asset purchase program. In the previous FOMC meeting, the monetary policy remained unchanged. Besides the FOMC meeting, let’s breakdown the upcoming events and publications that may affect the precious metals market, which will unfold during the month; let’s also provide a short analysis for August.

Gold and Silver Prices August 2013

Gold and silver prices sharply rose during August. Their rally didn’t coincide with the movement of the Euro and Japanese yen against the USD. By the end of the month, gold increased by 6.35% (as of August 30th); silver, by 19.61%. For silver this was the best performing month in the past several years. For gold, this was the second best performing month in 2013.

Let’s divide August into two parts: the table below divides the month at August 9th; I divide the month to demonstrate the shift in pace of gold and silver prices; during the first part of August, gold remained flat; silver rose by 3.9%. During the second part of August, however, silver spiked by 15.1%; gold price rallied by 6.3%.

Gold and Silver dollar euro percent change  September 2013

During the first part of August, the U.S dollar depreciated against the Euro, Japanese yen and Aussie dollar; the Euro/USD and AUD/USD currency pairs are usually strongly correlated with gold and silver. During the second part of the month, the Euro, Aussie dollar, Canadian dollar and Japanese yen depreciated against the USD.

The chart below presents the developments of gold and silver during August, in which the prices are normalized to 100 on July 31st 2013.

Gold forecast and silver forecast September 2013

The ratio of gold to silver (gold price/silver price) sharply fell during the month. The ratio decreased as silver price has out-performed gold price. During the month the ratio ranged between 67 and 57.

Here are several factors that may have positively affected gold and silver during August:

  1. The appreciation of several currencies including Euro, Japanese yen and Canadian dollar during the second part of August;
  2. Some U.S reports were not as good as many had anticipated: new home sales fell last month; Philly Fed index tumbled down during August;
  3. The decision of BOE, BOC, and ECB to leave their respective cash rate unchanged in August;
  4. According to the last U.S non-farm payroll report, 162k jobs were added – this was lower than expected any have pulled up gold and silver prices;
  5. The decline of  U.S equity markets that serve as an alternative investment for precious metals;
  6. The appreciation of several currencies such as Euro and Aussie dollar at the first part of the month against the USD;
  7. The pledge of the FOMC to keep its low rates until mid 2015;

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

  1. The minutes of the FOMC meeting didn’t offer new information but may have slightly curbed down the rally of precious metals;
  2. The decision of RBA to lower its cash rate by 0.25pp to 2.5%;
  3. Several U.S reports showed progress: Manufacturing PMI rose to 55.4; retail sales edged up by 0.2% during August; existing home sales jumped last month; GDP for the second quarter rose by 2.5%. These reports suggest the U.S economy is progressing and thus may have pulled down precious metals;
  4. The recent decrease in the U.S jobless claims during most of August;
  5. The depreciation of the Indian Rupee may have dragged down the demand for gold in India, among the leading importers of gold;
  6. The depreciation of the Indian Rupee, which may have curbed the demand for gold and silver in India;
  7. The depreciation of the Euro and Aussie dollar may have curbed the rally of gold and silver prices during the second part of the month;

Outlook for Gold and Silver – September 2013

The FOMC meeting may affect the financial markets: If the Fed decides to taper QE3 this could result in gold and silver resuming their downward trend. My guess, however, the FOMC won’t start tapering its asset purchase program just yet. In such a case, precious metals might slightly rise.  In the meantime, if the U.S economy shows signs of growth, this might persuade FOMC members to start tapering QE3 and thus it may pull down precious metals prices. Conversely, if U.S equities continue to fall, this is likely to strengthen the demand for gold and silver as alternative investments. In Europe, if the EU economy continues to show some progress and ECB keep interest rate unchanged, the Euro might rally, which may also positively affect gold and silver prices. The rise in recent weeks in the amount of gold held by GLD ETF suggests the demand for gold as an investment is starting to rise. Finally, if the demand for precious metals in China and India rise, this could positively affect the bullion market. In conclusion, I guess gold and silver prices might slightly rise during September. This rally, however, will not last long, if the U.S economy keeps growing and if the FOMC changes its monetary policy and cuts down its asset purchase program.  

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