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The prices, gold and silver edged down during last week, as the concerns over Greece and Spain may have contributed to the decline of the euro and bullion. In the past couple of weeks the decision of the FOMC to launch QE3 didn't seem to have much of an effect on bullion prices. I have referred to this issue in a recent post and think that the effect of QE3 on gold and silver will be slow and over time. As I have indicated in the precious metals weekly outlook, the main events of the week will revolve around: U.S. non-farm payroll report, the ongoing developments in Europe mainly around Spain and Greece, the minutes of the FOMC meeting and Bernanke's speech. Today, Bernanke will give a speech regarding the Fed's monetary policy. This speech could affect not only the USD but also precious metals. Other items on today's agenda include: GB Manufacturing PMI, euro area unemployment rate and U.S. ISM Manufacturing PMI.

On Friday, gold edged down by 0.37% to $1,773.9; Silver also slipped by 0.26% to $34.58. During last week, gold decreased by 0.23%; silver, by 0.18%. Furthermore, on Friday the SPDR Gold Shares (NYSEARCA:GLD) also decreased by 0.26% and reached by September 28th 171.89.

As seen below, the chart presents the shifts of normalized prices of precious metals in the last couple of weeks (normalized to 100 as of September 13th). During recent weeks, following the announcement of the Fed to launch QE3 the prices of gold and silver shifted with an unclear trend.


(Click to enlarge)

On Today's Agenda

  • Bernanke's Speech: Following the decision of the FOMC to launch QE3, many will look towards Bernanke's speech that may hint of the Fed's future steps. Bernanke will talk at the Economic Club of Indiana, Indianapolis. The title of his speech is ""Five Questions about the Federal Reserve and Monetary Policy."
  • U.S. ISM Manufacturing PMI: This report will refer to September. During August, the index edged down and reached 49.6%, which means the manufacturing sector in the U.S. is still contracting; this index may affect the direction of the USD and consequently bullion rates. If the index will pass the 50% mark this could rally commodities prices.
  • GB Manufacturing PMI: In the previous report regarding August the index increased to 49.5%. This means the manufacturing sector in GB is contracting at a slower pace; this index might affect British pound.
  • Euro Area unemployment rate: as of July, the rate of unemployment of the euro area edged up to 11.3%. This mean there wasn't any significant changes in the unemployment. If in the rate will further rise, it could adversely affect the euro.

Currencies / Bullion Market - October Update

The euro/ USD declined on Friday by 0.43% to 1.2859. During last week, the euro/USD fell by 0.94%. Further, other currencies including Aussie dollar also depreciated last week against the USD by 0.74%. The correlation between gold and euro remains mid-strong and positive: during September, the linear correlation between the gold and EURO/USD was 0.601 (daily percent changes). Following last week's shift in market sentiment, this week the bearish market sentiment towards the euro and other risk currencies might change direction, in such a case, it is likely to also pull up gold and silver.

Outlook

The prices of precious metals remained nearly flat during the past couple of week despite the FOMC's decision to launch QE3. Nonetheless, QE3 is likely to keep bullion rates high even if these metals will only slowly crawl up during the week. This week's publications of the non-farm payroll report and minutes of the FOMC meeting could affect the speculation regarding the future steps of the FOMC. Bernanke's speech could also shed some light on this issue, even though most of speeches are generally offering little hints on the future steps of the FOMC. In Europe, there are still expectations that Spain will make the formal request for the bond purchase program; the recent budget proposal of Spain might put the country one step closer to the program; in such a case, it could rally the euro. Finally, the strengthening of the Indian rupee and the seasonality effect (festival and weeding season) could raise the demand for gold in India, the leading importer of gold.

For further reading see" Gold and Silver Outlook for October"

Source: Gold And Silver Outlook For October 1