The prices of silver and gold didn’t do much during last week: both metals started off the week rising, but they have changed course and tumbled down during the second part of the week. One of the main events last week, Bernanke’s testimony at the Hill, didn’t seem to influence bullion traders. Will gold and silver resume their downward trend this week? As I have pointed out in the recent precious metals weekly outlook, several reports, events and decisions may affect bullion prices. These items include: rate decisions of ECB, Bank of England, Bank of Japan, Bank of Canada, U.S. trade balance, Australia’s GDP for Q4 2012, U.S. non-farm payroll report, China’s CPI, EU monetary development, U.S. factory orders and U.S. jobless claims. On today’s agenda: Spain’s unemployment Change, EU Economic Summit, Australian Retail Sales, and Reserve Bank of Australia Cash Rate decision.
On Friday, the price of gold slipped by 0.37% to $1,571.9; Silver, on the other hand, increased by 0.2% to $28.45. During last week, gold inched down by 0.03%; and silver by 0.03%. Moreover, during the previous week, the SPDR Gold Shares (GLD) declined by 0.35% and reached by March 1st to 152.44.
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 of gold and silver have had a downward trend during most of February.
On Today’s Agenda
Spain’s unemployment Change: The number of people unemployed increased in January by 132 thousand. This means the employment situation in Spain hasn’t improved. If in the next report this trend will continue, it may pull down the Euro.
EU Economic Summit: The EU ministers of finance will convene in Brussels; they will talk about the recent developments of the EU economy.
Australian Retail Sales: The next report will refer to January. In the previous report, the seasonally adjusted retail sales declined by 0.2%.
RBA – Cash Rate Statement: As of February, RBA left the overnight money rate unchanged at 3%. This rate is still the lowest level since the end of 2009. If the RBA will decide to cut its rate, this news may affect the Australian dollar.
Currencies / Bullion Market – March Update
The Euro/USD declined on Friday by 0.35% to 1.3022. During last week, the Euro/USD also fell by 1.3%. Moreover, some currencies such as the Aussie dollar also depreciated during the previous week against the USD by 1.13%. The recent depreciation of Euro and other “risk related currencies” may have modest effect on precious metals prices. The correlations among gold, Canadian dollar and Aussie dollar have weakened in recent days: during February/March, the linear correlation between gold and USD/CAD fell to -0.17 (daily percent changes); the linear correlation between the gold and AUD/USD declined to 0.16 (daily percent changes). These mid-week correlations might imply the recent decline of gold and silver rates had little to do with the daily changes in the foreign exchange markets. Nonetheless, the deprecation of these currencies against the USD in recent weeks coincided with the decline of bullion prices. Thus, if the Euro and other risk currencies will further depreciate against the USD, they might adversely affect gold and silver.
Prices of gold and silver didn’t do much during last week, but on a monthly scale both metals fell – this resulted in the worst performing month for gold and silver since May 2012. The ongoing appreciation of the U.S. dollar against leading currencies including Euro, Yen and Aussie dollar may have contributed to the fall of precious metals; even though the foreign exchange market had little effect on the daily shifts of bullion prices. This week, the leading central banks (except the Fed) will announce any changes to their interest rates or monetary policy. If Bank of Japan or Bank of England will decide to augment their current asset purchase program, this could further weaken their currencies. ECB, Reserve Bank of Australia and Bank of Canada will announce any changes to their respective short-term interest rate. If any of these Banks will decide to cut its rate, it could also weaken its respective currency. Thus, if leading currencies will further weaken against the USD, then gold and silver are likely to follow. Finally, the upcoming U.S. related reports of this week include factory orders, non-farm payroll report, non-manufacturing PMI, trade balance and jobless claims. They could affect not only the USD but also bullion rates. If the U.S. economy will keep showing signs of recovery, it could pull up the USD and thus adversely affect gold and silver prices.
For further reading see “Gold and Silver Outlook for March“