Gold and silver sharply fell again during most of last week. As the year is winding down and the U.S is getting closer to the fiscal cliff, the debates during this week between the White House and Congress could contribute to an increase in the volatility of precious metals prices. Furthermore, due to the holidays the trade volume is expected to fall during the week, which might result in an increase in price volatility. Will gold and silver continue to fall? Some analysts suspect the recent weakness of precious metals is due to the news, in which Morgan Stanley and Citigroup advised investors to pull their money out of Paulson's fund. This raised speculations that Paulson will liquidate some of his investments in gold (his largest position). Up to now, however, SPDR Gold Shares (NYSEARCA:GLD), the largest gold ETF worldwide, didn't have a drop in its gold position. As I have stated the latest precious metals weekly outlook, several reports may affect precious metals this week. These items include: U.S new and pending home sales, Bank of Japan minutes of recent monetary policy meeting, U.S consumer confidence report and jobless claims weekly update. On today's agenda: Japan's CSPI.
On Friday, the price of gold increased by 0.86% to $1,659.4; Silver price also rose by 1.78% to $30.15. During last week, gold declined by 2.11%; silver, by 6.66%. Moreover, during last week, the SPDR Gold Shares also decreased by 2.33% and reached by December 21st 160.33.
As seen below, the chart shows the developments in the normalized prices of precious metals during November and December (normalized to 100 as of November 1st). During recent weeks, the price of silver and gold tumbled down.
On Today's Agenda
Japan's CSPI: This report analyzes the developments in the price of services purchased by corporations. In the recent report the CSPI declined by 0.7% (M-o-M); this news may affect the Japanese yen;
Currencies / Bullion Market - December Update
The Euro/ USD increased on Friday by 0.19% to 1.3188. During last week, the Euro/USD edged up by 0.19%. Conversely, some currencies such as Aussie dollar depreciated during last week against the USD by 1.61%. This mixed trend of these "risk currencies" didn't' seem to affect precious metals. The correlations among gold, Euro and Aussie have significantly weakened during last week: during the past several weeks, the linear correlation between gold and Euro /USD reached 0.08 (daily percent changes); the linear correlation between the gold and AUD /USD was 0.09 (daily percent changes). This weak correlation might suggest the recent decline in gold and silver didn't coincide or resulted from the movement of the USD. Nonetheless, if the Euro and other risk currencies will rally against the USD, they are likely to positively affect gold and silver.
The prices of gold and silver declined during last week. The recent speculations around the next step of Paulson may have contributed to the weakness of precious metals, but the weakness of precious metals isn't something new as both gold and silver haven't performed well in the past couple of years. Even the FOMC decisions in the past couple of years to launch QE2, QE3, QE3 plus (some call it QE4) and the pledge of keeping short term rates low until 2015 didn't help pull up the price of gold or silver. This could imply that gold and silver will remain in their range in the months to follow and perhaps only slightly rise. The ongoing debates between U.S government officials around the multi-year budget and their attempts to avoid the fiscal cliff along with the low trade volume could lead to an increase in the price volatility of precious metals. I still guess gold and silver will slowly decline during the week. The upcoming U.S reports including: pending home sales, new home sales, consumer confidence report and jobless claims could affect not only the USD but also precious metals prices. If these reports will show the U.S economy is growing, they could adversely affect precious metals prices. Finally, if the Euro and other "risk currencies" will increase during the week against the USD, they are likely to positively affect precious metals.
For further reading see" Why Isn't Gold Pulling Up?"