The prices of gold and silver resume their downward trend as both precious metals’ prices tumbled down last week. The political developments in the U.S revolving approving the budget – that resulted in the current government shutdown – and raising the debt ceiling are likely to crowd out other news items that will unfold during the upcoming week. On Thursday and Friday, some analysts speculated some progress in the negotiations between the GOP and President Obama, which has led to a rally of the U.S stocks and tumble of precious metals. On October 17th, if the U.S government doesn’t raise the debt ceiling, it will default on its debt. This means, the U.S will start to fail paying some of its debt or cut down funded programs. Until these issues will be resolved other publications won’t have a strong effect on precious metals prices. During last week, the minutes of the September FOMC meeting revealed that most members think tapering QE3 wasn’t prudent back in September and if the U.S data support the claim that the U.S economy is progressing, this could lead the FOMC to taper QE3 program in the near future. Nonetheless, the members were spilt about when to taper QE3 some thought it’s better to do so sooner, i.e. this year, rather than later. In any case, this new didn’t seem to help pull up the prices of gold and silver. The current government shutdown also means fewer reports are getting published. This could also contribute to the delay of the FOMC’s decision of tapering QE3. Will gold and silver prices bounce back from its recent fall this week? Here is a short forecast for October 14th to October 18th including: EU industrial production, German ZEW economic sentiment, Philly fed survey, Canada’s manufacturing sales, minutes of RBA meeting, EU current account, and U.S. jobless claims.
The price of gold tumbled down by 3.18% last week; further, the average price reached $1,304.2 /t. oz which was 0.60% below last week’s average. Gold ended the week at $1,268.06 /t. oz.
The price of silver also declined by 2.28%; on the other hand, the average weekly rate was $21.95/t oz, which was 1.45% above last week’s.
Herein is a short overview showing the main reports and events that will come to fruition during October 14th to October 18th and may affect precious metals prices.
For the upcoming week, let’s overview the main publications and events broken down to the leading economies:
The talk of the FOMC’s next move on tapering or not QE3 will take the back seat this week for the current shutdown of U.S government. The speculations are likely to continue, which will result in high volatility in the financial markets including gold and silver markets. The upcoming debt ceiling breach that will take place on October 17th, assuming the GOP won’t approve in the House raising it, could stir up the financial markets. This could benefit precious metals prices and pull them back up. This rally, however, might not last long and once the crisis is resolved precious metals could resume their downward trend. Keep in mind, that if the volatility of precious metals soars, this could push the CME to raise the margins of gold and silver – resulting in a sharp drop in these metals’ prices. Few reports will come out this week: The Philly fed index, and jobless claims (The government shutdown also means few reports are published). If these reports meet expectations, they could pull down gold and silver prices.
The Euro remained nearly flat against the USD on a weekly scale. The stagnations in the Euro/USD also resulted in lower correlation between Eur/USD and precious metals prices. Next week, several reports will come out including: EU Industrial Production, Euro Area CPI, Euro Area Current Account, and German ZEW economic sentiment. These reports could also affect the Euro. The ECOFIN and Euro-Group Summits will take place next week.
China and India
In India, the current expectations continue to be that the country will reach record high volume of silver imports this year. This trend is likely to keep the price of silver from further tumbling down as it did in the past month. Moreover, the Rupee continued to rise against the USD during last week. If the Rupee further appreciates against the USD, this could positively affect the demand for gold and silver in India.
Next week several reports regarding China will be published including CPI, GDP and new loans. If these reports show growth in China’s economy, they could also suggest the demand for commodities such as gold and silver in China will increase.
Finally, gold holdings of SPDR gold trust ETF tumbled down again for the sixth consecutive week. During the month so far, the ETF’s gold holdings declined by 1.66%. The ETF was also down by 34.04% since the beginning of the year (up-to-date). Current gold holdings are at 890.97 tons – the lowest level in recent years. If the ETF’s gold holdings keep declining, this will signal the demand for gold as an investment is further softening.
The direction of gold and silver could be affected mostly by the developments in the U.S regarding the debt ceiling and budget talks. This uncertainty could affect the financial markets in the near future. If U.S policymakers continue to dig their heels, this could benefit gold and silver prices and they could bounce back from their recent fall. Moreover, the progress in Asia could also benefit the rally of precious metals prices. On the other hand, if the GOP and Obama reach an agreement on the budget and debt ceiling, this could lead to gold and silver resuming their downward trend. Keep in mind that if the volatility continues to rise, CME could intervene in the markets and raise the margin requirements on gold and silver. Finally, the correlations among leading currencies pairs and bullion rates have weakened. This means, the forex market didn’t seem to have much of an effect on precious metals market as it did in previous months.
For further reading: