Gold and silver continued to slowly recover during last week following their tumble in December. The current low volatility in the bullion market might continue until the next FOMC meeting at the end of January will take place. This meeting might stir up the precious metals market again. In the meantime, several reports came out last week and showed the U.S economy is slowly recovering: Philly Fed index rose to 9.4 in January; jobless claims declined by 2k to 326k; retail sales grew by 0.2% during December; both CPI and PPI increased in December by 0.3% and 0.4%, respectively. Despite the sharp rise in CPI, the core CPI inched up by only 0.1%; the annual rate remained at 1.7%.
Following the release of the minutes of the last FOMC meeting a couple of weeks ago, the next FOMC even will take place at the end of the month. Until then, bullion traders will continue to read the tea leaves and see if the U.S reports show of any potential changes in the progress of the U.S economy. The upcoming reports will be related to manufacturing and housing sectors including: manufacturing PMI and existing home sales. The regular weekly update on the jobless claims will also be released. If these reports continue to show progress in the U.S economy, they could pressure down the prices of gold and silver. Moreover, if the U.S dollar continues to rally against leading currencies such as Euro and Aussie dollar, this could also moderately pull down the prices of gold and silver. The Euro/USD and precious metals had a very weak correlation in recent weeks (during December/January the linear correlation was only -0.12 – mid weak correlation). These correlations show that the U.S dollar had little to do with the progress of precious metals. As such, this could suggest the progress of the U.S dollar will have little effect on precious metals prices’ development.
In conclusion, this week gold and silver might continue to slowly rise. Precious metals seem to slowly recover from their tumble in December. The few U.S reports could modestly affect the prices of gold and silver; if they show the U.S economy continues to improve, precious metals might slightly decline. The slow rise in volume of trade could cut down the level of volatility of prices. Finally, if the demand for gold and silver as investments continue to pick up, they could slightly strengthen bullion prices. Therefore, I remain neutral on gold and silver.
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