Gold and silver continued to trade up last week; their rally coincided with the appreciation of the Euro and Canadian dollar again the USD and other commodities such as oil. The FOMC kept its policy unchanged. This news, however, seems to have been crowded out by the U.S GDP quarterly update – the U.S GDP for Q4 fell by 0.1%. This news may have contributed to the rise of precious metals. On the other hand, several U.S reports were published last week and were positive: the manufacturing PMI in the U.S grew to 53.3% and the non-farm employment rose by 157k. This latter number, though positive, was lower than many had anticipated. The rate of unemployment remained at 7.9%. This news may have also pressured up precious metals rates even despite the rise in employment. Will gold and silver continue to trade up next week? Here is a short outlook for February 4th to February 8th; this includes a fundamental analysis of the main report and decisions that may influence metals traders including: ECB and BOE rate decisions, Canada’s trade balance, RBA rate decision, China’s trade balance, U.S non-manufacturing PMI, Japan’s current account, U.S trade balance, and U.S. jobless claims.
Gold rose during last week by 0.8%; conversely, during said week, the average rate reached $1,664.82 /t. oz which is 0.83% below the previous week’s. Gold ended the week at $1,669 /t. oz.
Silver spiked during last week by 2.49%; on the other hand, the average rate decreased by 1.26% to reach $31.47/t oz compared to last week’s average.
The Euro rose again against the U.S dollar by 1.31% (on a weekly scale); the Canadian dollar also appreciated against the USD by 0.92%; conversely, some currencies such as the Australian dollar and yen depreciated against the U.S dollar by 0.16% and 2.05%, respectively. The correlations between leading currency pairs and precious metals have strengthened in recent days: during January-February the correlation between USD/CAD and gold was -0.32 and between Australian dollar /USD and gold the correlation was stronger at 0.45. These correlations suggest the recent shifts in the forex markets may have had some effect on the changes in precious metals. These correlations might strengthen in the days to follow. Thus, if the Euro and other “risk” currencies will continue to appreciate again during the week, this might pull up gold and silver.
In the video below there is a broad overview of the main reports and events that may affect gold and silver between February 4th and February 8th. These include the above-mentioned news items such as: ECB and BOE rate decisions, Canada’s trade balance, RBA rate decision, China’s trade balance, U.S non-manufacturing PMI, U.S trade balance, and U.S. jobless claims (just to name a few).
In conclusion, I guess gold and silver will continue to slowly rise during the week. The upcoming rate decisions might affect not only the currencies markets but also precious metals prices. If RBA will decide to lower the rate again, this could adversely affect the Aussie dollar and thus pull down gold and silver. I guess that ECB and BOE will keep their current monetary policy and interest rates unchanged. In such an event this might pull up their respective currencies as was the case last month. Such an event might also pressure up commodities prices. If China’s economy (based on the upcoming reports such as CPI, new loans, trade balance) will show progress, this could pull up the prices of commodities. The upcoming reports regarding the U.S economy including: trade balance, non-manufacturing PMI and jobless claims, could affect the USD and precious metals prices: if these reports will show growth in the U.S economy, they may adversely affect gold and silver. The U.S money base has sharply grown in recent weeks, which could lead to a rise in the demand for gold as a safe haven investment against the potential depreciation of the USD. In India, another major player in the gold market, if the Indian Rupee will continue to strengthen against the USD, as it did last week; it may positively affect the demand for gold in India. Finally, if the Euro, Aussie dollar, Canadian dollar and other risk currencies will continue to appreciate against the USD, they could also positively affect precious metals.
For further reading:
- Weekly Outlook of Financial Markets for February 4-8
- Gold and Silver Outlook for February
- Gold and Silver Yearly Outlook For 2013
- Choosing Between Gold and Silver