The prices of gold and silver continued to rise last week. The rally of precious metals coincided with the appreciation of the USD against several currencies including the Euro and Canadian dollar, and the rise of other commodities such as crude oil. Will gold and silver continue to trade up this week? As I have stated in the recent precious metals weekly outlook, several reports and meetings may affect precious metals prices this week. These items include: ECB rate decision, U.S core durable goods, U.S non-manufacturing PMI, China's trade balance, and jobless claims weekly update. On today's agenda: Spain's unemployment Change, U.S Factory Orders, Australian Trade Balance and RBA Cash Rate decision.
On Friday, the price of gold rose by 0.56% to $1,669.9; Silver price also increased by 1.99% to $31.96. During last week, gold increased by 0.8%; silver, by 2.49%. Moreover, during last week, the SPDR Gold Shares (GLD) also rose by 0.5% and reached by February 2nd 161.45.
As seen below, the chart shows the changes in the normalized prices of precious metals between December and February (normalized to 100 as of November 30th). During recent days, the prices of silver and gold have rallied.
On Today's Agenda
Spain's unemployment Change: The unemployment situation in Spain is still dire but has slightly improved last month as the number of unemployed declined by 59 thousand. If in the upcoming report the employment situation will improve, this could pull up the Euro and indirectly affect commodities prices;
Australian Trade Balance: During November, the seasonally adjusted deficit in goods and services grew to $2,637 million. The export of non-monetary gold declined by $144 million; if gold exports will continue to decline, it might suggest a drop in demand for non-monetary gold (see here last report);
U.S Factory Orders: This report will pertain to December; in the previous report factory orders remained flat; this report will offer some insight to the development of the U.S economy and could affect the USD;
Reserve Bank of Australia - Cash Rate Decision: RBA will decide on any changes to its cash rate, which remained unchanged last month at 3.25% - the lowest rate since the end of 2009. RBA reduced the rate a few times during 2012. If the RBA will decide to reduce its cash rate again, this may affect the Aussie dollar which is strongly correlated with precious metals;
Currencies / Bullion Market - February Update
The Euro/ USD increased on Friday by 0.45% to 1.364. During last week, the Euro/USD increased by 1.31%. Conversely, some currencies such as Aussie dollar and Japanese yen depreciated during the previous week against the USD by 0.16% and 2.05%, respectively. The recent appreciation of Euro and Canadian dollar may have influenced precious metals traders. The correlations among gold, Canadian dollar and Euro have strengthened in recent weeks: during January/February, the linear correlation between gold and USD/CAD reached -0.32 (daily percent changes); the linear correlation between the gold and Euro /USD reached 0.19 (daily percent changes). These weak correlations might suggest the recent rally of gold and silver was partly affected or resulted from the changes in the foreign exchange markets. Nonetheless, if the Euro and other risk currencies will continue to appreciate against the USD, they might positively affect gold and silver.
Prices of precious metals rallied during last week. I suspect metals will continue to trade up this week. The FOMC's decision to keep its policy unchanged and not to refer to its future plans as to when it will pull the plug on the current asset purchase program is likely to maintain bullion rates high. The recent GDP report, in which it showed the U.S economy contracted in the fourth quarter, may have contributed to the recent rally in precious metals. If the upcoming U.S reports including factory orders, trade balance and jobless claims will show the U.S economy isn't progressing this could raise the demand for safe haven investments such as gold and silver. On the other hand, if RBA will lower its rate, this could depreciate the Aussie dollar and thus may pull down precious metals. The same goes for ECB and Bank of England's rate decisions to be made this week. Finally, if the Euro and other "risk currencies" will continue to appreciate during the week against the USD, they might positively affect precious metals.
For further reading: "Gold and Silver Outlook for February"