The prices of gold and silver continued their downward trend direction and following yesterday’s tumble they have both returned to their pre-FOMC QE3 decision prices. The recent U.S retail sales report was better than many had anticipated as the retails sales rose by 1.1% during September. This news may have lowered the expectations of many bullion traders for another FOMC monetary stimulus that could lower the value of the USD and thus pull up the prices of gold and silver. There are still speculations around the growth of China’s economy. Tomorrow’s GDP report for Q3 may shed some light on this issue. On today’s agenda: Great Britain CPI, German ZEW economic sentiment, BOE Inflation Estimate, U.S Core Consumer Price Index and U.S. TIC Long Term Purchases.
Here is a short outlook for precious metals for Tuesday, October 16th:
Precious Metals –October Update
On Monday, Gold declined again by 1.26% to $1,737.6 – the lowest level sine September 12th. This means, the recent tumble in the price of gold nullified the positive effect the FOMC decision to launch QE3, which was announced on September 13th, on precious metals prices; Silver also fell by 2.75% to $32.74. During the month, gold declined by 2.05%; silver, by 5.3%.
As seen below, the chart shows the developments of normalized prices of precious metals during September and October (normalized to 100 as of September 13th). During recent day both precious metals have declined.
The ratio between the two precious metals rose again on Monday to 53.07. During October the ratio increased by 3.44% as gold out-performed silver.
On Today’s Agenda
U.S Core Consumer Price Index: This monthly report will refer to the main changes in the core consumer price index for September 2012. During August, the CPI rose by 0.6%(M-o-M); the core CPI rose by 0.10%; the core index rose over the last 12 months by 1.9%;
Great Britain CPI: this report will refer to the yearly rate of GB’s CPI as of September; some expect the August inflation will further decline; in the recent report regarding August the annual CPI decreased from 2.6% to 2.5%; this news may affect the British pound;
German ZEW economic sentiment: The upcoming publication will refer to the ZEW indicator of economic sentiment for Germany for October. For September the ZEW indicator for Germany rose by 7.3 points to -18.2 points; if Germany’s economic sentiment won’t show signs of improvement, the Euro will plausibly remain weak against other currencies;
BOE Inflation Estimate: this report will show the yearly rate of GB’s inflation according to Bank of England and will be published as a letter only if the inflation is above 3% or below 1%;
U.S. TIC Long Term Purchases: The Treasury International Capital report will show the shifts in the purchases and sales of US long term treasuries in August 2012. In the previous report regarding July 2012, the net foreign sales of U.S Treasuries longer-term notes reached $67 billion;
Currencies / Bullion Market – October Update
The Euro/ USD edged down on Monday by 0.02% to 1.2949. During the month, the Euro/USD rose by 0.7%. On the other hand, several currencies including Aussie dollar slightly appreciated yesterday against the USD by 0.2%. The correlation between gold and Euro remains mid-strong and positive: during October, the linear correlation between the gold and EURO/USD was 0.49 (daily percent changes); the linear correlation between the gold and USD/CAD was -0.46 (daily percent changes). The chart below shows the linear correlations among leading currencies pairs and the prices of precious metals. The moderate movement in forex markets in which the Euro depreciated while the Aussie dollar appreciated didn’t seem to affect bullion prices yesterday. Nonetheless, if the Euro and other risk currencies will bounce back, they are likely to pull up gold and silver.
Current Gold and Silver Rates as of October 16th
Gold (November 2012 delivery) is traded at $1,739.2 per t oz. a $1.6 or 0.09% increase as of 23:12*.
Silver (November 2012 delivery) is at $32.79 per t oz – a $0.047 or 0.14% increase as of 23:12*.
Daily Outlook for October 16th
The prices of precious metals declined again for second consecutive business day for gold and third consecutive day for silver. Will this downward trend continue? There are concerns around the future growth of China, among the leading economies in importing gold. The recent deprecation of the Indian Rupee may curb the demand for gold in India, the leading country in importing gold. On the other hand, if the U.S will continue to show signs of progress as it did in the recent retail sales, then the chances of another stimulus plan by the FOMC will decline. The upcoming EU Summit is likely to affect not only the forex market, but also commodities prices. Despite yesterday’s fall I still guess the prices of gold and silver will resume their rally especially if today’s reports regarding U.S core CPI won’t rise by a sharp margin. Finally, if the Euro and other “risk currencies” will rally, then they could also pull up the prices of precious metals.
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
09:30 – Great Britain CPI
10:00 –German ZEW economic sentiment
Tentative – BOE Inflation Estimate
13:30 –U.S Core Consumer Price Index
14:00 – U.S. TIC Long Term Purchases
09:30 – Claimant Count Change
09:30 – MPC Meeting Minutes
13:30 – U.S. Housing Starts
13:30 – U.S. Building Permits
03:00 –China Third Quarter GDP 2012
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