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Guest Commentary: Gold & Silver Outlook for April

Guest Commentary: Gold & Silver Outlook for April

2012-04-02 19:43:00
Lior Cohen, Energy Analyst for Trading NRG,

Following the rally of gold and silver during January, the sentiment has changes vis-à-vis gold and silver as both of their prices have slowed down and didn't perform well during the last couple of months; furthermore, gold and silver declined during March and at a certain point fell to their lowest levels this year. Despite their bad performance during the month, from the beginning of the year, gold is still up by 6.01%; silver has added 15.6% to its value. As a comparison the S&P500 rose by 11.1% during the year. Part of the fall in metals might have to do with the recent decision of the FOMC to keep the policy unchanged and not to introduce QE3 for now. The saga with Greece has ended for now. Let's analyze the metals market for March and provide a short projection for gold and silver for April.

Gold and Silver March

Gold and silver declined during most of March, even though for several parts of the month there was an unclear trend for both metals as they have zigzagged from gains to losses.

The chart below presents the developments of gold and silver during March, in which the prices are normalized to 100 on February 29th 2012.

Guest_Commentary_Gold_Monthly_Report_April_body_Gold_prices_forecast__silver_price_outlook_March_April_2012.png, Guest Commentary: Gold & Silver Outlook for April

Here are several factors that may have curbed the rally of gold and silver during March:

  1. The FOMC decision to keep its policy unchanged (see below for more);
  2. The U.S labor report of March showed a sharp rise in U.S. employment by 227k; this report is usually negatively correlated with gold and silver (see below);
  3. The protest in India (the leading country in importing gold) against the new tax for importing gold;

Here are several factors that may have contributed to gold and silver to trade up during March:

  1. The concerns Bernanke voiced in his recent speech on the U.S labor market – this speech shifted a bit the market sentiment that there just might be another FOMC monetary intervention;
  2. The ongoing FOMC pledge to keep rates low until late 2014;
  3. The news regarding the moderate contraction in the U.S. housing market (including the drop in housing starts);

Outlook for Gold and Silver– April

Here are several factors to consider that may affect the direction of gold and silver:

The European debt crisis has had a negative effect on the Euro and this in turn had a negative effect on gold and silver prices. If there will be big headlines from Europe it could adversely affect not only the Euro, but also metals.

The upcoming minutes of the March FOMC meeting to be released on April 3rd and even more importantly the next FOMC meeting which is set to April 25th and 26th could shake up the metals market again as it did in the March meeting. If there will be another pull back from the concept of monetary expansion, it may continue to drag down gold and silver prices. Since the recent FOMC meeting already did so, then this upcoming meeting may have a lesser effect on metals and currencies.

In conclusion, I speculate gold and silver might make a comeback during the first couple of weeks especially if the EU will continue to stabilize and the U.S economy won't present big signs of recovery as it did in recent months. But as the month will end, and assuming the upcoming FOMC meeting at the end of April will keep the door close on QE3, gold and silver prices will decline and thus will end the month with little gain if at all. On the other hand, if the concerns regarding the European debt crisis will reignite and the U.S. will continue to show signs of recovery it could negatively affect the direction of metals.

This gold and silver forecast was first presents in Trading NRG

For further reading:

What Are the Potential Outcomes for Gold Price in 2012?

Where are Gold and Silver Headed in 2012?

By: Lior Cohen, M.A. in Economics, Commodities Analyst and Blogger at Trading NRG

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