The prices of gold and silver moved in an unclear trend during the past week; the speculations around this week’s FOMC meeting keep the bullion market with high uncertainty. Some analysts guess tapering will be announced in next FOMC meeting: In the meantime, some U.S reports were mostly positive, e.g. retail sales slightly increased by 0.7% in November, month over month, and by 4.7% from November 2012. Conversely, jobless claims jumped by 68k to 368k. These developments may have slightly tilted the odds in favor of tapering QE3, but the Fed is still keeping this decision close to the vest with no clear statement. This might just suggest the FOMC is undecided regarding the next move. Here is a short breakdown for December 16th to December 20th including: U.S housing data, Draghi’s testimony, U.S CPI, Philly fed survey, China’s manufacturing PMI, U.S’s third quarter GDP, EU group and ECOFIN Summits, and U.S. jobless claims.
The price of gold slightly rose by 0.47% last week; further, during last week, the average price reached $1,243.14 /t. oz which was 1.02% higher than last week’s average rate. The price of silver rose by 0.43%; moreover, the average weekly rate was $19.84/t oz, which was 2.21% below last week’s rate.
Herein is a short overview showing the main reports and events that will come to fruition during December 16th and December 20th and may affect precious metals prices.
Let’s breakdown the main events of reports by leading economies:
Following the high volatility in gold and silver price, this week might continue this high movement.
The main event of the week will be the upcoming FOMC meeting, which will be held between December 17 and 18. Currently, many analysts suspect the FOMC will announce the tapering of QE3. Nonetheless, this news isn’t trending on Google trends as you can see in the chart below.
Analysts guess tapering will be announced this time because of the very positive reports on the U.S economy including the GDP for the third quarter that grew by 3.6%, the slow rally in the housing market and the sharp rise in NF jobs and the decline in unemployment to 7%. These numbers suggest the U.S economy is progressing and thus cutting back from QE3 is prudent.
My guess is that the FOMC won’t start tapering QE3 just yet and will wait to do so after the U.S economy is showing some additional signs of recovery, and the budget talks and raising the debt ceiling early next year will be over. Keep in mind, the U.S inflation is still very low and the current expectations remain low (below 2-2.5%), so the asset purchase program could still continue. In an event of a decision to cut down on the asset purchase program by $15 billion, this decision isn’t likely to have much of an adverse effect on the U.S dollar or commodities prices. Therefore, even if the Fed were to announce the tapering of QE3, my guess is that it won’t have much long term impact on the forex and commodities markets.
Besides the upcoming FOMC meeting, this week several reports will be released including: housing starts, building permits, GDP for Q3 (final estimate), existing home sales, Philly fed survey, CPI, and jobless claims; they could have some moderate effect on USD and precious metals prices. Nonetheless, the upcoming FOMC meeting is likely to crowd out any effect these reports may have on the financial markets.
The Euro slightly appreciated against the USD during last week. Its moderate rally coincided with the slight recovery of other currencies such as Canadian dollar and Japanese yen. The moderate rise of the Euro didn’t seem to positively coincide with the movement of gold and silver prices. Next week, several events and reports will take place including: EU group summit, Draghi’s testimony, French and German manufacturing PMI, and EU CPI. The upcoming reports may affect the Euro/ USD, and, in turn, may also affect gold and silver. Nonetheless, the big FOMC meeting is likely to crowd down any potential effect these reports may have on the Euro. The linear correlation between Euro/USD and gold price contracted again to 0.20 during November/December – a positive and mid-weak correlation.
India and China
During last week, the Chinese manufacturing PMI report will be released. This report could indicate if the Chinese economy has progressed. If China’s economy has improved, it could suggest the demand for commodities including gold and silver is strengthening.
In India, the Indian Rupee sharply depreciated against the USD during last week. This trend could adversely affect the gold and silver prices in India and negatively affect the demand for precious metals. Moreover, the higher import taxes could keep curbing down the growth in demand for precious metals.
Finally, gold holdings of SPDR gold trust ETF decreased again by 0.97% last week. The ETF was also down by 38.73% for the year (up-to-date). Current gold holdings are at 827.6 tons. If the ETF’s gold holdings continue to fall, this may signal the demand for gold as an investment is diminishing.
In conclusion, this week is likely to be much more volatile than the previous one. The Fed’s next meeting is likely to be the main mover of the week that will determine the direction of gold and silver for the week. My guess is that gold and silver might recover from the recent fall, unless, of course, the Fed will surprise and cut down the asset purchase program. In such an event, gold and silver are likely to resume their downward trend. This trend, however, won’t last long.
For further reading: