he high volatility in precious metals markets eased down during June after the high movement they have had during May. The recent publication of the minutes of the FOMC meeting from back in June and Bernanke’s testimony in Congress rekindled the speculations around the Fed’s next move; specifically, whether the FOMC will decide in the near future to taper its $85 billion a month asset purchase program. During the month, gold and silver continued their downward trend for the second consecutive month. The recent gold report revealed a sharp rise in outflow from leading gold ETFs despite the rise in demand for gold in China and India. The fall in demand for gold as an investment especially considering the sharp rally in the equity markets contributed to the decline in precious metals prices. Will this downward trend persist in the coming weeks? Let’s breakdown the upcoming events related to the precious metals market that will unfold during July, and provide a short analysis for June.
Gold and Silver Prices June 2013
Gold and silver tumbled down mainly during the second part of June. Bernanke’s press conference following the recent FOMC meeting, in which he opened the door for FOMC tapering QE3 by the end of 2013, and China’s credit squeeze dragged down the prices of gold and silver. By the end of the month, gold plummeted by 12.12% (as of June 28th); silver, by 12.49%. For gold this was the worst performing month in recent years. For silver, this was the worst performing month since April 2013.
Let’s divide June into two sections: the table below divides the month at June 18th; I divide the month to demonstrate the shift in pace of gold and silver prices; during the first part of June, gold slipped by 1.9%; silver, by 2.5%. During the second part of June, however, silver tumbled down by 10.3%; gold price fell by 10.5%.
During the first part of June, the U.S dollar depreciated against the Euro, Japanese yen and Canadian dollar; the Euro/USD and AUD/USD currency pairs are usually strongly correlated with gold and silver. During the second part of the month, the EURO declined against the USD. Moreover, the Aussie dollar, Japanese yen and Canadian dollar sharply weakened.
The chart below shows the developments of gold and silver prices during June, in which the rates are normalized to 100 on May 31st 2013.
The ratio of gold to silver (gold price/silver price) slowly increase during the month only to tumble down on the last week of June. The ratio increased as silver price has slightly under-performed gold price. During the month the ratio ranged between 62 and 66.
Here are several factors that may have dragged down of gold and silver prices during the month:
- The press conference following the recent FOMC meeting;
- China’s leading banks’ credit squeeze;
- According to the latest U.S non-farm payroll report, 175k jobs were added; the unemployment rate edged up to 7.6%; this report tends to be negatively correlated with gold and silver prices;
- Several U.S reports showed growth: new home sales rose in May; housing starts rose by 6.8% in May; consumer confidence was up; retail sales rose by 0.6% during May; new orders of durable goods also increased during last month. These reports suggest the U.S economy is progressing and thus pulled down precious metals;
- The decline in the growth rate of the manufacturing sectors in China and Europe may have pulled down commodities prices;
- The recent decline in the U.S jobless claims during most of June;
- The depreciation of the Indian Rupee June has dragged down the demand for gold in India, among the leading importers of gold. Moreover, the rise in India’s import tax on gold;
- The slight depreciation of the Chinese Yuan may have pulled down the demand for gold in China, the leading importer of gold;
- The depreciation of several currencies including Euro, Aussie dollar and Canadian dollar during the second part of June;
Here are several factors that may have curbed the fall of gold and silver during the month:
- The decision of BOE, BOC, ECB and RBA to keep their respective cash rate unchanged in June;
- The slowdown in the recovery of the U.S equity markets that serve as an alternative investment for bullion;
- The revised down U.S growth in GDP for the first quarter of 2013;
- The appreciation of several currencies such as Euro and Canadian dollar at the beginning of the month against the USD;
- The pledge of the FOMC to keep its low rates until mid 2015;