Precious metals prices didn’t do much on a monthly scale even though there were many events and news items that shifted gold and silver from gains to losses with an unclear trend. The FOMC decision to extend operation twist on the one hand, and the recent EU Summit decision to bailout EU banks and to tighten the supervision on them on the other, pulled gold and silver in different directions. The recent rally of Euro/USD has also played a role in the recovery of bullion by the end of the month.
Will this unclear trend continue in July? The main events of the month will continue to be around the FOMC and the EU debt crisis: the FOMC minutes of the recent meeting will be published and at the end of the month the FOMC will have another meeting. The EU leaders will continue to talk over the recent decision and close the terms of the agreement.
Let’s examine the bullion market for June and provide a short outlook for gold and silver prices for July 2012.
Gold and Silver Prices June 2012
Gold and silver zigzagged during June with an unclear trend, even though by the end of the month both precious metals have made a big comeback along with the rest of the markets.
During the month, gold rose by 2.56%; silver, unlike gold, edged down by 0.52%.
Let’s divide June into two parts: the table below divides the month to two with the breaking point at June 20th; I divide the month on June 20th because that was before the publication of the recent FOMC meeting and the effect the decision by the FOMC had on the bullion market; during the first part of June, gold rose by 3.3% and silver price by 2.3%. During the second part of June, silver declined by 2.7% and gold price by 0.7%.
During the first part of June, the U.S dollar depreciated against the Euro, Canadian dollar and Australian dollar; these currencies are usually strongly linked with gold and silver prices. During the second part of the month, the U.S dollar slightly appreciated against and Euro and edged down against the Canadian dollar and Australian dollar; this shift might have also had something to do with the decline in gold and silver prices during the second part of the month.
The chart below shows the developments of gold and silver prices during June, in which the prices are normalized to 100 on May 31st 2012.
The next chart shows the shifts in the ratio of gold to silver (gold price/silver price) during the month; the ratio has a moderate upward trend. The ratio rose as silver price has under-performed gold price. In the last week of June the ratio ranged between 57 and 59.
Here are several factors that may have contributed to the decline of gold and silver prices during June:
- The FOMC decision to extend operation twist throughout the rest of 2012; this means no QE3 for now;
- The concerns over Spanish debt crisis;
- The testimony of Bernanke on June 8th in which he cooled down the speculations around another QE program;
- The deprecation in major currencies including Euro, Aussie dollar during parts of the month;
- The positive news from the U.S economy mainly in the housing market;
Here are several factors that may have contributed to the rise of gold and silver during the month:
- The renewed confidence in the EU after the EU leaders had decided to offer struggling banks loans from the rescue fund so that countries such as Spain won’t have to raise money to bail banks (see below for more);
- The rise of the Euro/USD during the first part of the month;
- The U.S labor report of June showed a modest gain in U.S. employment of only 69k; this report is usually negatively correlated with gold and silver prices (see below);
- The ongoing FOMC pledge to keep rates low until late 2014;
- The news regarding the contraction in the U.S Philly Fed Index;
- The U.S. federal deficit expanded by 124 billion during May 2012; this expansion raises a bit the uncertainty level in the market;
In conclusion, I speculate gold and silver will start to pick up again. The U.S economy might not show much progress which tends to positively correlated with bullion rates. The upcoming U.S labor report could have some impact on the bullion market. The renewed ease over the EU debt crisis might pull up the Euro which is strongly and positively linked with precious metals prices. The upcoming FOMC meeting and the minutes of the June FOMC meeting aren’t likely to do much worse to gold and silver than the June FOMC meeting had already done. I suspect all these items mount up to bullion trading up but not by much. Finally, if major currencies including Euro and Aussie dollar will continue to trade up against the USD, bullion rate are likely to follow and also rise. Nevertheless, as long as the FOMC won’t announce of another QE program I suspect bullion rates will remain in their respective ranges.
The full report coming soon…
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