Gold and silver resumed their downward trend from the end of last week and plummeted to their lowest levels in recent years. Last weeks many talked about the recommendation of Goldman Sachs to pull out of gold and the publication of the minutes of the recent FOMC meeting. This week started with the disappointing China’s GDP report. But these events occurred in the past and didn’t have such a sharp reaction in the precious metals markets. I think this was just a tipping point regarding the sentiment towards gold and silver that pulled investors out of precious metals. Will gold and silver bounce back? Currently, the prices of gold and silver are rising. On today’s agenda: GB CPI, Euro Area CPI, Canada Manufacturing Sales, Bank of England Inflation letter,ECB President speaks, Housing starts and building permits monthly update, U.S Core Consumer Price Index and German ZEW economic sentiment.
Here is a short outlook for precious metals for Tuesday, April 16th:
Precious Metals – April Update
On Monday, the price of gold tumbled down by 9.35% to $1,360.6 – the sharpest single day drop in the price of gold in 30 years; Silver also sharply decreased by 11.28% to $23.36. During April, gold declined by 14.7%; silver, by 17.43%. Usually following such sharp falls in the prices of gold and silver, they tend to rally. In fact, in the past several years when the price of gold fell by more than 2.5% in a single day, in 65% of the times the price rose the next day; for silver it’s 60% of the times. Since both precious metals sharply fell in two consecutive business days, the odds are higher for them to correct today.
In the chart below are the normalized prices of gold and silver during April (normalized to 100 as of March 28th). The rates of gold and silver have tumbled down in the past couple of business days.
The gold and silver futures volumes of trade have sharply rose on Friday to 391 thousand and 121 thousand, respectively. These numbers are the highest levels in recent weeks. If the volume will remain low today, this could suggest the odds of sudden sharp shifts in the prices of gold and silver due to low volume will rise. The chart below shows the volume of trading gold and silver futures in the CME in recent weeks.
U.S. Housing Starts: this report was historically correlated with gold price – as housing starts rise, gold prices tended to decline the next day (even when controlling to the USD); in the recent monthly report, the adjusted annual rate reached 917,000 in February 2013, which was 0.8% from January’s rate;
U.S. Building Permits: in the previous update, building permits rose during February by 4.6% (M-o-M) in the adjusted annual rate of building permits was 904,000. If building permits will continue to increase, it may indicate that the U.S housing market (from this aspect) is recovering (the recent U.S building permits update);
U.S Core CPI: According to the U.S Bureau of Labor statistics during February, the CPI rose by 0.7% (M-o-M); the core CPI slightly increased by 0.2%; the core index rose over the past twelve months by 2.0%.
Great Britain CPI: This report may affect the path of the British Pound currency. In the latest report regarding February 2013, the CPI rose to an annual rate of 2.8%;
Great Britain PPI Input: this report will refer to the GB’s PPI input for March 2013; as of the latest monthly update regarding February 2013, the PPI input rose by 3.2%;
Euro Area CPI: according to the previous update the annual CPI fell again to 1.8%, which is slightly lower than ECB’s target inflation; if the inflation will continue to decline, it could raise the chances of ECB cutting its cash rate in the near future;
German ZEW economic sentiment: In March the ZEW indicator for Germany slightly rose again to 48.5 points; if Germany’s economic sentiment will increase further, the Euro will plausibly strengthened against other currencies such as the USD;
Bank of England Inflation letter: this report will present the yearly rate of GB’s inflation based on the estimate of Bank of England; the bank will publish the letter only if the inflation is exceed 3% or will be below 1%;
Canada Manufacturing Sales: This report will pertain to the manufacturing sales in Canada as of February. It may affect the USD/CAD currencies pair, which is strongly linked with commodities rates. In the latest report regarding January 2013, manufacturing sales slipped again by 0.2%;
ECB President Speaks: Mario Draghi will give a speech in Strasbourg. He is scheduled to talk about ECB’s activities at the European Parliament. If Draghi will provide some insight behind the future plans of the ECB’s monetary policy, this speech could affect the Euro;
Currencies / Bullion Market – April Update
The Euro/ USD fell on Monday by 0.58% to 1.3113. During April, the Euro/USD increased by 1.72%. Moreover, other currencies such as the Aussie dollar and Canadian dollar also depreciated yesterday against the U.S dollar by 1.82% and 1.17%, respectively. The tumble of leading currencies against the U.S dollar may have had little to do with the decline of gold and silver. The correlations among gold, Euro and Aussie dollar strengthened for March/April: the linear correlation between gold and USD/ CAD was -0.58 (daily percent changes); the linear correlation between the gold and AUD/USD was 0.64 (daily percent changes). These correlations suggest the recent tumble of precious metals rates was slightly related to the changes in the foreign exchange markets.
Current Gold and Silver Rates as of April 16th
Gold (short term delivery) is traded at $1,377 per t oz. a $16.2 or 1.19% increase as of 08:39*.
Silver (short term delivery) is at $23.54 per t oz – a 0.77% increase as of 08:39*.
Here is a reminder of the top events and publications that are scheduled for tomorrow (all times GMT):
09:30 – Great Britain Claimant Count Change
09:30 – Minutes of MPC Meeting
Tentative – German 10 Year Bond Auction
15:00 – Bank of Canada’s Overnight Rate
23:50 – Japanese Trade balance
For further reading: