The prices of gold and silver resumed their upward trend during last week. Precious metals rose despite the appreciation of the USD against major currencies including the Euro, Canadian dollar and Japanese yen. Will gold and silver continue to rise this week? As I have stated in the recent precious metals weekly outlook, several reports, speeches and meetings may affect precious metals prices this week. These items include: U.S new and existing home sales reports, China's manufacturing PMI, BOC interest rate decision, Australia's CPI, ECB President Speech, minutes of the latest MPC meeting and jobless claims weekly update. On today's agenda: EU Economic Summit and Bank of Japan Monetary Policy Statement.
On Friday, the price of gold inched down by 0.22% to $1,687; Silver price, on the other hand, edged up by 0.43% to $31.92. During last week, gold rose by 1.6%; silver, by 5.1%. Moreover, during last week, the SPDR Gold Shares (GLD) also rose by 1.3% and reached by January 18th 163.09.
As seen below, the chart shows the development in the normalized prices of precious metals between November and January (normalized to 100 as of November 1st). During recent weeks, the prices of silver and gold have rallied from their tumble during December.
On Today's Agenda
All Day - EU Economic Summit: EU ministers of finance will convene in Brussels. The President of Euro-Group Jean-Claude Juncker is planned to step down in this Summit. The EU ministers are likely to discuss the future progress of the EU economy and perhaps start their debates over the multi-year EU budget.
Bank of Japan -Monetary Policy Statement: Bank of Japan will announce any changes in its asset purchase program, which currently stands around 100 trillion yen. BOJ raised the asset purchase program in three of the last four sessions. Following the recent steps taken by newly elected Prime Minster Shinzo Abe to stimulate the Japanese economy, it is likely that BOJ will augment its asset purchase program. In such a case, the Japanese yen will further weaken against the USD.
Currencies / Bullion Market - January Update
The Euro/ USD declined on Friday by 0.41% to 1.3321. During last week, the Euro/USD decreased by 0.2%. Moreover, some currencies such as Aussie dollar also slightly depreciated during the previous week against the USD by 0.24%. The recent fall of "risk currencies" may have slightly influenced precious metals traders. Nonetheless, the correlations among gold, Euro and Aussie remained weaker than in the past: during December and January, the linear correlation between gold and Euro /USD reached 0.09 (daily percent changes); the linear correlation between the gold and AUD /USD was 0.35 (daily percent changes). These weak correlations might suggest the recent rally of gold and silver didn't coincide or resulted from the developments in the foreign exchange markets. Nonetheless, if the Euro and other risk currencies change direction and appreciate against the USD, they are might positively affect gold and silver.
Prices of precious metals have had an upward trend during last week. I suspect this rally will continue this week. Bernanke's speech last week didn't seem to influence bullion traders. This means next week's FOMC meeting could surprise traders if the Fed will decide to change its current $85 billion per month securities purchase program. If the U.S economy continue to show progress, this could lower the odds of the Fed maintaining its quantitative easing plan. The uncertainty around the future steps U.S policymakers will take with respect to the debt ceiling and the spending cuts might affect not only the USD but also precious metals rates. The upcoming U.S reports including: new home sales, existing home sales and jobless claims could affect not only the USD but also precious metals rates. If these reports show the U.S economy is growing, they might adversely affect precious metals prices. China is among the leading importers of gold. The progress of China's economy is likely to keep gold and silver prices high. The upcoming report regarding China's manufacturing PMI could help rally commodities prices if the PMI will rise again. 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"