Gold and silver edged down again during last week. Unless there is a last minute development, the U.S economy will jump over the "fiscal cliff". These budget talks aren't likely to end in 2012 as U.S policymakers could still introduce new tax cuts in the months to follow to keep the U.S economy from slowing down. Due to the holidays the trade volume is expected to decline during the week, which might result in a drop in price volatility. Will gold and silver continue to decline? As I have pointed out in the latest precious metals weekly outlook, several reports may affect precious metals this week. These items include: U.S non-farm payroll report, minutes of the FOMC meeting, U.S manufacturing PMI and jobless claims weekly update. On today's agenda: China Manufacturing PMI.
On Friday, the price of gold slipped by 0.47% to $1,654.9; Silver price also declined by 0.87% to $29.92. During last week, gold edged down by 0.27%; silver, by 0.76%. Conversely, during last week, the SPDR Gold Shares (NYSEARCA:GLD) edged up by 0.13% and reached by December 28th 160.54.
As seen below, the chart presents the developments in the normalized prices of precious metals during November and December (normalized to 100 as of November 1st). During recent weeks, the prices of silver and gold have had a downward trend.
On Today's Agenda
China Manufacturing PMI: According the latest update, in November the Manufacturing PMI rose to 50.6; this means that China's manufacturing sectors expanded at a slightly faster pace. If this upcoming monthly update will also present an additional expansion in the manufacturing sectors, it could signal growth in China's economy. If such a case, this may also positively affect precious metals;
Currencies / Bullion Market - December Update
The Euro/ USD also declined on Friday by 0.13% to 1.3216. During last week, the Euro/USD edged up by 0.21%. Conversely, some currencies such as Aussie dollar depreciated during the previous week against the USD by 0.22%. The low volatility and unclear trend of these "risk currencies" didn't seem to affect the movement of precious metals. The correlations among gold, Euro and Aussie have significantly weakened in recent weeks: during December, the linear correlation between gold and Euro /USD reached -0.03 (daily percent changes); the linear correlation between the gold and AUD /USD was -0.07 (daily percent changes). These weak correlations might suggest the recent fall in gold and silver didn't coincide or resulted from the developments in the forex markets. Nonetheless, if the Euro and other risk currencies will further fall against the USD, they are might adversely affect gold and silver.
Prices of precious metals might start the week rising as a correction to last week's downward tend, but I guess the prices of gold and silver will slowly decline during this week. The speculations around "the day after" the fiscal cliff is likely to bring back the volatility in the financial markets as the New Year will commence. The weakness of the precious metals remained despite the recent launch of QE3 plus a few weeks back. Moreover, the speculations around the future plans of Paulson may have also contributed to the weakness of bullion. Up to now the amount of gold in the GLD is still rising, so there is no evidence for a drop in holdings. The upcoming U.S reports including: the minutes of the FOMC meeting, manufacturing PMI, non-farm payroll report and jobless claims could affect not only the USD but also precious metals rates. If these reports show the U.S economy is further expanding, they could adversely affect precious metals prices. Finally, if the Euro and other "risk currencies" decline during the week against the USD, they might also adversely affect precious metals.
For further reading see "Gold and Silver Outlook for January"