As many had anticipated the FOMC kept its policy unchanged but stated its concern regarding the still elevated unemployment. Gold and silver continued to trade down yesterday along with other commodities including oil and natural gas. Yesterday, it was reported that new home sales rose by 5.7% during September. This news, however, didn’t seem to curb the fall of commodities and stock markets. Today, $29 billion auction on seven year U.S treasuries will commence. Yields on 7-year treasuries have declined in recent days. This auction might serve as an indicator for the market sentiment. Currently, the prices of gold and silver are rising. On today’s agenda: Flash GB GDP Q3 2012, U.S Core Durable Goods, U.S. Jobless Claims and Pending Home Sales.
Here is a short outlook for precious metals for Thursday, October 25th:
Precious Metals –October Update
On Wednesday, Gold declined again by 0.46% to $1,701.6; Silver also decreased by 0.54% to $31.62. During October, gold decreased by 4.08%; silver, by 8.55%.
As seen below, the chart shows the shifts of normalized prices of bullion during September-October (normalized to 100 as of September 13th). During recent weeks, both gold and silver have declined.
The ratio between the two precious metals slightly increased on Wednesday to 53.81. During the month, the ratio increased by 4.9% as gold slightly out-performed silver.
FOMC Statement – Fed Left Policy Unchanged
Yesterday, the FOMC concluded its last meeting before the U.S Presidential elections. The Fed left its monetary policy unchanged and will continue with its plan to purchase mortgage backed securities at a pace of $40 billion per month. The Fed will keep its pledge of maintaining its short term interest rate low at least until mid-2015. the Board voiced again its concern regarding the high unemployment and the slow recovery of the housing market. Since the Fed didn’t change its policy, this news might pull back a bit the prices of silver and gold. In the past, whenever the Fed left its policy unchanged the prices of bullion tended to fall the next day. The table below presents the precious metal market reaction to the news of the FOMC decision. The next meeting will be held during December 11-12.
On Today’s Agenda
U.S Core Durable Goods: This report may indirectly indicate the changes in U.S. demand for commodities such as crude oil. As of August, new orders of manufactured durable goods declined by $30.1 billion to $198.5 billion; if this report will continue to show a drop in orders then it could pull down not only the US dollar but also commodities;
U.S. Jobless Claims Weekly Report: in the previous update the jobless claims rose by 46k to 388,000; this upcoming weekly update may affect the U.S dollar and consequently the rates of precious metals;
U.S. Pending Home Sales: in the recent report the pending home sales index fell by 2.6% (M-over-M). These data are another indicator for the shifts in America’s real estate market; based on last week’s results on housing starts, the pending sales may change direction and rise. In such a case US dollar may rally;
Flash GB GDP Q3 2012: This report will show the first estimate of the quarterly growth rate of the British economy during the third quarter of 2012; during the second quarter the GB economy contracted by 0.7% (Q-2-Q);
Currencies / Bullion Market – October Update
The Euro/ USD also declined on Wednesday by 0.09% to 1.2974. During the month, the Euro/USD rose by 0.89%. On the other hand, some other currencies such as Aussie dollar and Yen appreciated against the USD by 0.87% and 0.06%, respectively. The correlation between gold and Euro remains robust: during recent weeks, the linear correlation between the gold and EURO/USD was at 0.56 (daily percent changes); the linear correlation between the gold and Aussie dollar /USD was 0.44 (daily percent changes). If the Euro will change direction and rally against the USD, it is likely to positively affect gold and silver.
Current Gold and Silver Rates as of October 25th
Gold (November 2012 delivery) is traded at $1,713.4 per t oz. a $11.8 or 0.69% increase as of 07:10*.
Silver (November 2012 delivery) is at $32.11 per t oz – a $0.49 or 1.55% increase as of 07:11*.
Daily Outlook for October 25th
The prices of precious metals declined again yesterday for the second consecutive day. The decision of the FOMC to keep policy unchanged isn’t likely to have much of an effect on the prices of bullion since many had already anticipated such a decision. I still think the market sentiment will pull down gold and silver prices even if they may have corrections along the way. The upcoming U.S reports including core durable goods, pending home sales and jobless claims could pull back bullion rates if these reports will be positive and exceed expectations. On the other hand, if the Euro and other “risk currencies” will change direction and rally against the USD, then they are likely to positively affect precious metals.
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
09:30 – Flash GB GDP Q3 2012
13:30 – U.S Core Durable Goods
13:30 – U.S. Jobless Claims Weekly Report
15:00 – U.S. Pending Home Sales
07:00 – German Consumer Climate
08:00 – KOF Economic Barometer
13:30 – First U.S GDP 3Q 2012 Estimate
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