During last week gold and silver moved in an unclear trend. Last week,Jobless claims slipped by 12k to reach 346k; U.S retail sales rose by 0.6%;PPI bounced back in May by 0.5%. These reports may have contributed to the recovery of U.S equity markets and may have curbed the rally of bullion rates. In the forex market, the Aussie yen and Euro rose last week, which may have pressured up gold and silver prices. Next week, the unclear trend of precious metals might dissipate if the Federal Reserve will change its policy and taper its current asset purchase program. Will gold and silver resume their downward trend this week? Here is a short outlook for June 17th to June 21st; this includes a fundamental analysis of the main reports, decisions and publications that may affect bullion markets. These include: FOMC meeting, U.S core CPI, Philly fed survey, U.S housing starts, minutes of RBA’s meeting, China, EU and Germany’s manufacturing PMI, U.S existing home sales, G8 Summit and U.S. jobless claims.
Last week, the price of gold inched up by 0.33%; conversely, during the week, the average rate reached $1,384.20 /t. oz which was 1.22% below last week’s average.
Silver price also increased by 0.97%; on the other hand, the average weekly rate was $21.78/t oz, which was 2.81% below last week’s rate.
Fed’s Monetary Policy Meeting
The main issue will be whether the Fed will start tapering its current $85 billion a month asset purchase program. On the one hand, the Fed’s efforts to improve the economic conditions were very limited: the rate of unemployment inched down from 7.8% back in September 2012, when QE3 was announced, to 7.6% as of May 2013; the rate of inflation dropped to an annual rate of 1.1% and core CPI to 1.7% – well below the Fed’s goal of 2-2.5%. On the other hand, the sequester and slow global economic growth especially in Europe contributed to the slow progress of the U.S economy. The Fed’s goal of reaching 6.5% rate of unemployment is likely to take a long time and tapering QE3 won’t help reaching this benchmark.
As seen above, the Fed’s policy announcements had little long term effect on prices of gold and silver. If the Fed won’t change its policy or its economic forecast, we might see another rise and fall kind of movement of gold and silver prices as was the case in the past several policy meetings. My guess the Fed will start tapering QE3 in the fourth quarter of the year.
In the meantime, precious metals prices are likely to keep moving in an unclear trend. Last week’s rally of leading currencies against the USD including the Euro, Japanese yen and Aussie dollar helped pull up commodities rates. In Asia, next week the Chinese flash manufacturing PMI report will come out. If the report will show contraction in manufacturing conditions, it could drag down bullion.
In the U.S, the upcoming reports including: housing starts, CPI, and Philly Fed index may provide some perspective regarding the developments of the U.S economy. If these reports will show signs of contraction, they could drag down equities markets and indirectly pull up bullion prices. The upcoming minutes of the recent RBA and MPC monetary policy meetings could stir up the forex markets and indirectly affect precious metals, if the minutes will reveal of the future plans of these Banks.
Gold holdings of the SPDR gold trust ETF continue to decline: the ETF’s amount of gold held slipped by 0.95% during June. If gold holdings will continue to dwindle, they could indicate the demand for gold as an investment continues to fall. Finally, the Indian Rupee changed direction and slightly appreciated against the USD during last week; if this trend will continue; it may positively affect the demand of gold in India.