The prices gold and silver resumed their upward trend soon after the FOMC announced of QE3 that will consist of purchasing additional agency mortgage-backed securities at a rate of $40 billion per month. This news is likely to continue affecting precious metals rates during the day. Currently the price of gold is rising. In other news U.S PPI rose by 1.7% during last month. U.S jobless claims rose by 15k to reach 382k. These news items may have curbed a bit the rally of bullion but the effect of the FOMC decision eclipsed all other news items. On today’s agenda: European Council Meeting, U.S Core Consumer Price Index, U.S. Retail Sales Report and UoM Consumer Sentiment.
Here is a short outlook for precious metals for Friday, September 14th:
Precious Metals –September Update
On Thursday, Gold hiked by 2.21% to $1,772; Silver also rose by 4.46% to $34.78. During September, gold increased by 5.01%; silver, by 10.61%.
The chart below shows the shifts of normalized prices of precious metals in the past couple of weeks (normalized to 100 as of August 31st). As seen below, gold and silver have risen in the past several days .
The ratio between the two precious metals fell on Thursday to 50.95. During September the ratio declined by 5.07% as gold slightly under-performed silver.
FOMC Announced of QE3
I really thought the Fed will wait with the launch of QE3 until after the elections…but the all FOMC members except one decided its time to take it up a notch and release QE3 with no time limit. The FOMC concluded its meeting with a statement that it will continue its “operation twist until the end of the year, keep rates low until mid 2015 – it was previously until late 2014 – and, as said above, launch QE3 that will consist of purchasing additional agency mortgage-backed securities at a rate of $40 billion per month. This news, as expected, pulled up the prices of precious metals. The table below shows the reaction of bullion rates following the FOMC meetings. The last time there was such a strong and positive reaction was back in January when the Fed had pledged to keep rates low until late 2014. This also suggests, assuming all things equal, that bullion rates will continue to rise during the day.
On Today’s Agenda
European Council Meeting: The European Council Meeting will be held in Brussels and the EU ministers of finance will meet and converse about the recent political and monetary changes in Europe;
U.S Core Consumer Price Index: According to the U.S Bureau of Labor statistics during July, the core CPI edged up by 0.1%(M-o-M) and the index rose over the last 12 months by 2.1%; the CPI remained flat last month;
U.S. Retail Sales Report: in the recent report regarding July, the retail sales rose by 0.8% from the previous month; gasoline stations sales increased by 0.5% in July compared to June;
UoM Consumer Sentiment (preliminary): University of Michigan will issue its preliminary consumer sentiment survey; this survey could offer another insight to recent developments in U.S consumers sentiment about the economy; last time the sentiment index rose to 73.6;
Currencies / Bullion Market – September Update
The Euro/ USD rose on again Thursday by 0.69% to 1.2989. During the month, the Euro/USD rose by 3.26%. Further, other currencies including Aussie dollar and Canadian dollar also appreciated on Thursday against the USD by 0.76% and 0.79%, respectively. The linear correlation between precious metals and Euro is still strong and positive: during August/September, the linear correlation between the gold and EURO/USD reached 0.58 (daily percent changes). The recent FOMC decision had a modest positive effect on the Euro. If the Euro will further rise, the prices of precious metals are likely to follow and increase. Currently, the Euro/USD is trading down.
Current Gold and Silver Rates as of September 14th
Gold (October 2012 delivery) is traded at $1,773.2 per t oz. a $1.6 or 0.09% increase as of 23:33*.
Silver (October 2012 delivery) is at $34.705 per t oz – a $0.073 or 0.21% decrease as of 23:33*.
Daily Outlook for September 14th
The prices of bullion hiked yesterday soon after many learned that the Fed did launched another quantitative easing plan. This plan, as oppose to the previous plans – QE1 and QE2 – has no time frame, and is only concentrated in mortgage backed securities and not other securities. This plan along the pledge to keep short terms rates low until mid-2015, and the extension of operation twist – in order to pull down the long term government bond yields – should help jump-start the U.S economy. The Fed also stated that if needed it will implement additional monetary maneuvers while keeping close attention on the inflation. I guess the recent U.S reports including the non-farm employment report (only 96k added jobs), the U.S GDP that grew by only 1.7% during Q2 2012 and the manufacturing PMI report that showed the manufacturing sectors continue to contract were the tipping the point for the Fed to issue QE3. This also means that the prices of gold and silver are likely to further rise in the weeks to come.
Finally, today’s publication of U.S reports including retail sales and CPI might have some effect on the USD and bullion as indicated above. Here is a reminder of the top events and publications that are scheduled for today (all times GMT):
All Day – European Council Meeting
13:30 –U.S Core Consumer Price Index
13:30 –U.S. Retail Sales Report
14:55 – UoM Consumer Sentiment
For further reading: