The prices of precious metals resumed their upward trend during most of last week despite the depreciation of major “risk related currencies” against the USD. Bernanke’s speech from last week didn’t seem to influence traders. I guess we will have to wait for the next FOMC meeting at the end of the month and see if the Fed will adjust its policy. Several reports were published last week and may have also affected precious metals: China’s GDP expanded by 7.9% in the forth quarter; U.S retail sales rose by 0.5% in December; Philly Fed index declined in the January survey; the U.S jobless claims decreased by 37k to reach 335k; housing starts sharply increased in December; both the core PPI and CPI inched up in December. The report on China may have helped rally precious metals; the U.S related reports showed a mixed signal as to the progress of the U.S economy, but were mostly positive and may have also contributed to the rally of commodities. Will gold and silver continue to trade up next week? Here is a short outlook for January 21st to January 25th; this includes a fundamental analysis of the main report and speeches that may affect precious metals including: U.S new home sales, Mario Draghi’s speech, Euro-group meetings, Canada’s retail sales, Australia’s CPI, minutes of MPC meeting, China’s flash manufacturing PMI, BOC rate decision, German manufacturing PMI, Spain’s unemployment rate auction, and U.S. jobless claims.
Gold increased during last week by 1.59%; moreover, during said week, the average rate reached $1,682.86 /t. oz which is 1.35% below the previous week’s average. Gold ended the week at $1,687 /t. oz.
Silver spiked during the previous week by 5.07%; moreover, the average rate also increased by 3.83% to reach $31.56/t oz.
The Euro inched down against the U.S dollar by 0.16% (on a weekly scale); moreover, other “risk” currencies such as the Australian dollar also depreciated against the U.S dollar by 0.24%. The correlations between leading currency pairs and precious metals remained weak in recent weeks: during December and January the correlation between Euro/USD and gold was only 0.08 and between Australian dollar /USD and gold the correlation was slightly stronger at 0.35. These weak correlations suggest the recent shifts in the forex markets may have had at best a moderate effect on the changes in precious metals. These low correlations, however, might strengthen in the coming months. Thus, if the Euro and other “risk” will appreciate 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 January 21st and January 25th. These include the above-mentioned news items such as: U.S new home sales, Mario Draghi’s speech, Euro-group meetings, China’s flash manufacturing PMI, BOC rate decision, German manufacturing PMI, 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 ongoing rise in trading volume is likely to slower the price volatility of gold and silver. The main event of the month will be held at the end of the month – the first FOMC meeting. This meeting might show if the FOMC is planning to slowdown its monetary expansion. Last week’s speech by Bernanke didn’t offer any insight regarding the future steps of the Fed. The recent rally of precious metals coincided with the rally of other commodities such as oil and stocks markets. Perhaps this rally is just part of the whole January effect. Moreover, the QE3 program is starting to have some positive effect on the prices of gold and silver. I still, however, that the prices of gold and silver won’t reach new highs only maintain their range from the past several months. The uncertainty around future steps U.S policymakers will take vis-à-vis spending cuts and debt ceiling could keep contributing to the rally precious metals in the coming weeks. The recent positive news of the progress of the China’s economy may have had a positive effect of commodities prices. The upcoming report regarding China’s manufacturing could also give any upward push to commodities if the PMI will rise again. China is among the lading importers of gold in recent years, and if its economy will continue to rise, it could suggest a growing demand for gold. The upcoming reports regarding the U.S economy including: new and existing home sales and jobless claims, could affect the USD and bullion rates: if these reports will show progress in the U.S economy, they may adversely affect the prices of gold and silver. If the EU Summit will lead to any new headlines that could affect the Euro, this could also influence bullion traders. 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, among the leading consumers of gold. Finally, if the Euro, Aussie dollar, Canadian dollar and other risk currencies will change pace and appreciate against the USD, they could also positively affect precious metals.
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