Despite the high expectations, the FOMC left its policy unchanged and didn’t decide to taper its asset purchase program at this point. This decision has had an immediate effect on the financial markets: Long term treasuries yields have dropped; the USD has sharply depreciated against leading currencies such as Euro and GB Pound; U.S stock market has rallied. In the precious metals market the non-decision of the Fed didn’t affect the prices of gold and silver yesterday. But currently both precious metals are traded sharply up. Here is the background leading to the Fed’s recent decision. The aftermath of this decision is likely to keep gold and silver sharply rising during the day. On today’s agenda: Philly Fed Manufacturing Index, GB Retails Sales, Libor Rate of Swiss National Bank, U.S. Existing Home Sales, and U.S. Jobless Claims.
Here is a short overview for bullion for Thursday, September 19th:
Gold and Silver Prices Recap – September Update
On Wednesday, gold slipped again by 0.13% to $1,307.70; Silver also decreased by 1.01% to $21.53. During September, gold decreased by 6.31%; silver, by 8.32%. In the chart below are the normalized prices of bullion for 2013 (normalized to 100 as of August 30th). The prices of gold and silver have fallen in recent weeks.
See here the weekly outlook for gold and silver for September 16-20.
On Today’s Agenda
The FOMC concluded its two day meeting with the decision to keep its $85 billion a month asset purchase program unchanged. This means, the FOMC won’t start tapering this month. This news is likely to pull down the USD and pressure back up gold and silver prices.
The Fed decided to maintain its asset purchase program unchanged at this time:
“…the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. “
This decision has pulled back up the prices of gold and silver. Moreover, the high expectations for some sort of tapering could also lead to the weakening of USD.
The table below shows the recent developments in gold and silver prices on the first two days after the FOMC statement was published in 2012 and 2013.
Libor Rate of Swiss National Bank: The Swiss National Bank will come out with its Libor rate decision; this decision could affect not only currencies markets but also commodities markets, assuming, the bank changes its Libor rate;
GB Retails Sales: This report presents the developments in the retails sales in Great Britain for August 2013. It may affect the British Pound currency. In the recent report regarding July 2013, retails sales increased by 1.1%;
U.S. Jobless Claims: In the recent report the jobless claims plunged by 31k to reach 292k; the next weekly report may affect the U.S dollar and consequently bullion prices;
U.S. Existing Home Sales: This report presents the developments in U.S. existing home sales during August 2013; in the previous report regarding July 2013 the number of homes sold rose to a seasonally adjusted annual rate of 5.39 million houses; if this trend persist, it might affect the U.S dollar;
Philly Fed Manufacturing Index: This monthly survey projects the growth of the US manufacturing sectors. In the latest survey regarding August, the growth rate fell from +19.8 in July to +9.3 in August. If the index continues to slowdown, it may positively affect not only U.S Dollar but also U.S equity markets and commodities (the recent Philly Fed review);
Currencies / Precious Metals– September Update
On Wednesday, the Euro/ USD currency pair sharply rose again by 1.21% to 1.3521. During the month, so far, the Euro/USD rallied by 2.26%. Moreover, other currencies such as the Aussie dollar and Canadian dollar also sharply appreciated yesterday against the U.S dollar by 1.76% and 0.74%, respectively. The correlations among gold, Euro and Aussie dollar have weakened in recent weeks, e.g. the correlation between the AUD/USD and gold price is 0.11 during August-September. These weaker correlations suggest the changes of the USD against other currencies have had a lesser effect on bullion rates compared to recent months.
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
08:30 – Libor Rate of Swiss National Bank
09:30 – GB Retails Sales
13:30 – U.S. Jobless Claims
15:00 – U.S. Existing Home Sales
15:00 – Philly Fed Manufacturing Index
Tentative – Bank of Japan’s Kuroda Speaks
13:00 – Canada’s core CPI
For further reading: