The prices of gold and silver changed direction and fell during last week. The decline of precious metals coincided with the appreciation of the USD against several currencies including the Aussie dollar, Canadian dollar and Japanese yen. Will gold and silver change course and rally this week? As I have pointed out in the recent precious metals weekly outlook, several reports and meetings may affect precious metals prices this week. These items include: FOMC meeting, U.S GDP for Q4 2012, U.S non-farm payroll report, China's manufacturing PMI, and jobless claims weekly update. On today's agenda: Euro Area Monetary Development, U.S Core Durable Goods and U.S. Pending Home Sales.
On Friday, the price of gold fell by 0.8% to $1,656.6; Silver price also declined by 1.62% to $31.18. During last week, gold decreased by 1.8%; silver, by 2.32%. Moreover, during last week, the SPDR Gold Shares (NYSEARCA:GLD) also fell by 1.5% and reached by January 25th 160.65.
As seen below, the chart presents 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 changed direction and fell during recent days.
On Today's Agenda
Euro Area Monetary Development: In the previous report, the annual growth rate for M3 inched down to 3.8%; M1 increased to 6.7%; the annual growth rate of private sector loans remained at -0.5%. This news suggests the EU economy isn't growing; if this trend will continue it may pull down the Euro/USD and consequently precious metals.
U.S Core Durable Goods: This report may indirectly indicate the changes in U.S. demand for commodities. As of November 2012, new orders of manufactured durable goods rose to $220.9 billion; if this report will show another rise in new orders then it could pull up the USD.
U.S. Pending Home Sales: This report will refer to December; in the previous report, the pending home sales index rose by 1.7% (M-over-M). This report is another indicator for the developments in America's housing market; if the index will rise again will show further rise it may positively affect the U.S dollar.
Currencies / Bullion Market - January Update
The Euro/ USD rose on Friday by 0.66% to 1.3464. Conversely, some currencies such as Aussie dollar and Canadian dollar depreciated during the previous week against the USD by 0.82% and 1.42%, respectively. The recent depreciation of these "risk currencies" may have influenced precious metals traders. The correlations among gold, Canadian dollar and Aussie have strengthened in recent weeks: during January, the linear correlation between gold and USD/CAD reached -0.29 (daily percent changes); the linear correlation between the gold and AUD /USD was 0.43 (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 will change direction and appreciate against the USD, they are might positively affect gold and silver.
Prices of precious metals changed direction and declined during last week. I suspect metals will further fall this week. The recent decision of the Indian government to raise taxes on gold imports is likely to pull down the demand for gold in this country in the coming weeks. This may have also led to a short term spike in the demand for gold before the tax will be implemented. The FOMC will convene for the first time in 2013 and will decide on its monetary policy. If the Fed will surprise and augment its current running $85 billion a month purchase program then this could rally precious metals. This scenario, however, isn't likely. The current expectations are that the FOMC might talk about its future exit strategy from the QE programs. In the previous FOMC meeting the Fed introduced an additional QE program in which the Fed will purchase every month $45 billion long term securities. This is in addition to the Bank purchasing $40 billion mortgage backed securities each month. For now, these programs didn't lead to a sharp rise in the inflation or in gold and silver prices. Because the recent QE3 program didn't lead (for now) to a rise in the prices of bullion, and because the FOMC might talk about its future plan to exit from its current program, the upcoming FOMC meeting might pull down precious metals. The upcoming U.S reports including core durable goods, GDP for Q4 2012, pending home sales and non-farm payroll report could affect not only the USD but also bullion: If these reports will demonstrate the U.S economy is progressing, they might pull down precious metals prices. Finally, if the Euro and other "risk currencies" will depreciate during the week against the USD, they might also adversely affect precious metals.
For further reading: Gold and Silver Outlook for Jan 28- Feb 1