The prices of gold and silver sharply declined in the past couple of months. Looking forward, will gold and silver recover from their recent tumble? Let's break down the upcoming events that may affect gold (GLD) and silver (SLV) prices.
U.S. Economic Progress
This week, the U.S. non-farm payroll report will come out. If U.S. employment can improve, this could pressure up the USD and thus pull down the demand for safe haven investments such as gold and silver. Following Bernanke's testimony in Congress, many speculate the Fed might taper its current $85 billion a month asset purchase program. If this does occur, it would likely adversely affect the prices of precious metals in the coming months.
China's demand for silver is falling
Despite the recent rise in China's manufacturing conditions during the last month, China's demand for silver declined: During April, silver imports fell by 28% (year-over-year) and reached 172 tons. The upcoming trade balance report will come out on Friday. If China's imports of gold and silver fall again, this could contribute to the negative market sentiment towards precious metals.
India's gold imports
India's policymakers raised import taxes on gold earlier this year. Nonetheless, gold imports rose in recent months. According to the World Gold Council, demand for gold sharply rose in India during the first quarter of 2013: Gold bar and coin sales spiked by 52% (y-o-y). Current reports suggest the Indian government might take "corrective measures" to lower the demand for gold. If these measures come to fruition, they could also pressure down the price of gold.
The ECB will decide this week on its interest rate for June. Last month, the ECB lowered the rate by 0.25 bps to reach 0.5% - its lowest level ever. If the ECB decides to surprise and lower the rate again, this could pull down not only the Euro but also commodities prices including gold and silver.
Reserve Bank of Australia's rate decision
Last month the RBA lowered its interest rate by 0.25 bps to 2.75%. This week, the Bank left its rate unchanged. Nevertheless, the Bank warned it may expand its monetary easing in the near future. If the RBA lowers its short-term rate again in the following months, this could adversely affect the Aussie dollar. The Aussie dollar tends to be strongly and positively correlated with gold and silver prices; if the Aussie dollar continues to depreciate against leading currencies including the USD, this could also pull down precious metals prices.
Based on the above, I suspect gold and silver are likely to resume their downward trend in the near future. If the U.S. economy continues to show signs of recovery and if China and India's demand for precious metals drops as predicted, the demand for precious metals would dissipate significantly. If gold and silver prices resume their downward trend, shares of leading gold companies such as Goldcorp (GG), Yamana (AUY) and Royal Gold (RGLD) are likely to follow.