The prices of gold and silver changed direction and fell on Tuesday. Nonetheless, on a monthly scale both precious metals haven’t done much and only slightly declined. The upcoming FOMC statement and outlook are likely to affect the developments in the forex and commodities markets. Many have already talked about this meeting and so all that is left is to see the FOMC’s decision. The recent positive news from Washington about approving next year’s budget – the Senate sent the budget to the White House of the President’s approval – may have also tilted the scale in favor of tapering QE3 in December. The positive data on the progress of the U.S economy in housing, retail, employment are also likely to influence FOMC members to “take their foot off the gas” a bit and reduce the asset purchase program – if not in December, in the very near future. On today’s agenda: FOMC statement and economic outlook, U.S housing starts and building permits, German Ifo Business Climate Index, Great Britain Claimant Count Change, MPC Asset Purchase and Rate Votes, and ECOFIN Summit.
Here is a short overview for precious metals for Wednesday, December 18th:
Gold and Silver – December Review
On Tuesday, gold fell by 1.16% to $1,230.8; Silver, by 1.29% to $19.80. During December, gold declined by 1.58%; silver fell by 1.01%. In the chart below are the normalized prices of bullion for 2013 (normalized to 100 as of November 29th). The prices of gold and silver have moved in an unclear trend in the past couple of weeks.
The ratio between the two precious metals rose on Tuesday to 62.17. During December, the ratio slightly slipped by 0.57% as silver has moderately out-performed gold.
The gold and silver futures volumes of trade have slightly rose and reached on Tuesday 142 thousand and 47 thousand, respectively. The volume of trade is still very low – lower than the volume recorded just a couple of weeks ago. The low volume of trade might enable gold and silver to change course and rise from their recent fall, following the upcoming FOMC meeting.
On Today’s Agenda
FOMC Meeting and Press Conference: The highly anticipated final FOMC meeting for this year will take place during December 18th and 18th. The FOMC will decide whether it will start tapering QE3. Many analysts expect the FOMC will announce the tapering of its long term treasury bonds purchase program by $15 billion a month. In such an event, the total asset purchase program, in this case, would remain at $70 billion a month. Considering the little effect the treasury bonds purchase program has had on the economy and the slow progress of the labor market, the FOMC might decide to take different measures to stimulate the economy, such as raising the inflation target, increasing the mortgage backed securities purchase program, or pegging the long term interest rates (10 years) at 2.5%. If the Fed reduces QE3, it is might pull up USD and drag down (for a short period) gold and silver prices. If the Fed won’t introduce any changes to its monetary policy, gold and silver prices might bounce back. In any case, the FOMC’s statement, outlook and press conference that follow are likely to move the forex, stocks and commodities markets;
The table below shows the changes in precious metals prices during on the day the FOMC makes its announcement and the following day from the past couple of years.
German Ifo Business Climate Index: This index comprises of the developments (on a monthly basis) in the manufacturers, builders, wholesalers, and retailers in Germany as of December. In the last report regarding November 2013, the business climate index rose to 109.3 in October;
Great Britain Claimant Count Change: As of previous month, the number of unemployed in GB fell again by 41.7k; the rate of unemployment inched down to 7.6%;
MPC Asset Purchase and Rate Votes: In the past MPC meeting, the Bank kept the rate unchanged at 0.5% and the asset purchase program at £375 billion; this vote count will show how many MPC members voted on any changes to the asset purchase program or interest rate;
ECOFIN Summit: The EU ministers of finance will meet and talk about the recent economic developments in EU;
U.S. Housing Starts: The U.S Census Bureau will publish its U.S housing starts monthly update for October 2013; this report was historically correlated with gold price – as housing starts rise, gold tends to fall the next day (even when controlling to the U.S dollar effect); in the past report the housing starts data weren’t released;
U.S. Building Permits: In the previous update, during October, building permits rose by 6.2% (m-o-m) as the adjusted annual rate of building permits reached 1.034,000. If building permits continue to rise, it may indicate that the U.S housing market is reheating (the recent U.S building permits update);
Currencies / Precious Metals Correlations – December Update
On Tuesday, the Eur/USD currency pair inched up by 0.05% to 1.3768. During December, the Eur/USD increased by 1.3%. On the other hand, other currencies such as the Canadian dollar moderately depreciated yesterday against the U.S dollar by 0.10%. The correlations among gold, silver and Euro have further weakened again in recent weeks, e.g. the correlation between the Euro/USD and gold price is only 0.11 during November-December – its lowest level since mid-April. This could suggest the shifts of the gold and silver prices have little to do with the developments in the forex market.
Here is a reminder of the main events and publications that are scheduled for today and tomorrow (all times GMT):
09:00 – German Ifo Business Climate Index
09:30 – Great Britain Claimant Count Change
09:30 –MPC Asset Purchase and Rate Votes
All Day – ECOFIN Summit
13:30 – U.S. Housing Starts
13:30 – U.S. Building Permits
19:00 – FOMC Meeting and Press Conference
09:00 – Euro Area Current Account
09:30 – Great Britain Retail Sales
13:30 – U.S. Jobless Claims
15:00 – U.S. Existing Home Sales
15:00 – Philly Fed Manufacturing Index For further reading: