The prices of silver and gold tumbled down during last week. Their decline may have stemmed from the recent news regarding the decision of big investors such as Soros to cut their holdings in gold. Will gold and silver continue to fall or change course and bounce back this week? As I have pointed out in the recent precious metals weekly outlook, several reports and publications may affect precious metals prices. These items include: the minutes of FOMC meeting, Philly Fed manufacturing index, Euro Zone manufacturing PMI, U.S CPI and PPI, and U.S housing starts. On today’s agenda: ECB President Testifies, the minutes of Bank of Japan’s monetary Policy meeting and Minutes of Reserve Bank of Australia monetary policy meeting.
On Friday, the price of gold tumbled down by 1.55% to $1,609.5; Silver fell by 1.66% to $29.85. During the previous week, gold decreased by 3.4%; silver, by 5.06%. Moreover, during last week, the SPDR Gold Shares (GLD) sharply declined by 3.6% and reached by February 15th 155.76.
In the chart below are the normalized prices of gold and silver between January and February (normalized to 100 as of December 31st). The prices have had a downward trend in recent weeks.
On Today’s Agenda
ECB President Testifies: Mario Draghi will testify in the European Parliament’s Economic and Monetary Committee. If the ECB President will bring some new perceptive regarding the developments of the EU economy, the testimony could affect the path of the Euro;
Bank of Japan – Minutes of Monetary Policy: Bank of Japan will publish the minutes of last week’s monetary policy meeting. In the recent meeting, BOJ left its asset purchase program unchanged. The minutes could offer some insight behind the previous decision and could affect the Yen, other currencies and bullion rates;
Minutes of Australia’s Bank Monetary Policy Meeting: The minutes of the recent RBA meeting of may reveal the main reasons behind the Bank’s decision to leave the basic interest rate at 3%;
Currencies / Bullion Market – February Update
The Euro/ USD inched down on Friday by 0.02% to 1.336. During last week, the Euro/USD also edged down by 0.04%. Moreover, some currencies such as the Aussie dollar and the Canadian dollar also slightly depreciated during last week against the USD by 0.14% and 0.44%, respectively. The recent depreciation of the euro and other “risk related currencies” may have moderately influenced precious metals traders. The correlations among gold, Canadian dollar and Aussie dollar remained stable in recent days: during January/February, the linear correlation between gold and USD/CAD reached -0.27 (daily percent changes); the linear correlation between the gold and AUD /USD reached 0.46 (daily percent changes). These mid-strong correlations might suggest the recent tumble of gold and silver was partly affected or resulted from the developments in the foreign exchange markets. Thus, if the Euro and other risk currencies will bounce back and appreciate against the USD, they might positively affect gold and silver.
Prices of precious metals continued to decline during last week. Moreover, since the beginning of the month both gold and silver also fell. The U.S dollar moderately appreciated against leading currencies, but I still think the developments in the foreign exchange market may have had a limited affect on bullion rates in recent weeks. The U.S long term treasury yields continue to rally (10 year notes have reached 2.01% yield by Friday). This rise in yields may have coincided with the drop in demand for safe haven investments including gold and silver. Even the Fed’s QE3 program doesn’t seem to curb the rise in long term yields. The upcoming minutes of the last FOMC meeting might offer some insight behind the future steps of the Fed and perhaps put a timeframe on the Fed’s asset purchase plan. In such an event, bullion prices might react to this news and decline. The upcoming U.S related reports of this week include Philly Fed index, CPI, PPI, housing starts and jobless claims. They could affect not only the USD but also bullion rates. If the U.S economy will show signs of growth, it could pull up the USD and thus pressure down bullion rates. If BOJ’s minutes will offer some insight behind its recent monetary policy meeting, this could affect the yen, which is also linked with precious metals. Finally, if the Euro and other “risk currencies” will appreciate during the week against the USD, they might help rally precious metals.