The prices gold and silver started off the week on positive note as both precious metals increased along with other commodities and stock prices. The unexpected rise in the U.S manufacturing PMI index to reach 51.5% may have contributed to the positive market sentiment. Further, Bernanke’s speech in which he promised to keep short term rates low even if the economy will strengthen may have also contributed to the rise of bullion rates. Currently, the prices of gold and silver are falling. Other items on today’s agenda include: Reserve Bank of Australia Cash Rate Statement (Update: RBA announced it decided to cut the cash rate again by 0.25pp to 3.25% to its lowest level since 2009 – this news is pulling down the Aussie dollar), Great Britain 10 Year Bond Auction and Australian Trade Balance.
Here is a short outlook for precious metals for Tuesday, October 2nd:
Precious Metals –October Update
On Monday, Gold rose by 0.53% to $1,783.3; Silver also increased by 1.08% to $34.95. During last week, gold decreased by 0.23%; silver, by 0.18%.
As seen below, the chart shows the changes of normalized prices of precious metals in the last couple of weeks (normalized to 100 as of August 31st). During recent weeks, following the launch of QE3 by the Fed, the prices of gold and silver moved with an unclear trend.
St. Deviation of Gold and Silver
The rise in the volatility in the bullion markets during September, compared to August, is also reflected in the rise in the standard deviations of gold and silver (daily percent changes) that were slightly higher than the standard deviations in August.
The ratio between the two precious metals decreased on Monday to 51.02. During September, the ratio fell by 4.42% as gold under-performed silver.
Bernanke gave a speech yesterday titled “Five Questions about the Federal Reserve and Monetary Policy”. In this speech Bernanke laid down his and the Fed’s monetary policy and referred, among other, to the recent steps the Fed has taken, the additional options the Fed has to take in the future, his take on the effect the Fed’s steps have on the inflation. It’s worth mentioning that he also stated that the Fed will keep the rates low even if the economy were to recover:
“…we also extended our estimate of how long we expect to keep the short-term interest rate at exceptionally low levels to at least mid-2015. That doesn’t mean that we expect the economy to be weak through 2015. Rather, our message was that, so long as price stability is preserved, we will take care not to raise rates prematurely. Specifically, we expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens”.
Chairman of the Fed voiced again his concern over the “fiscal cliff” – in which the Congress will reduce spending and raise taxes – that should come into play at the beginning of year. I think this problem is another factor that could motivate the Fed to expand its monetary policy even further in the months to follow.
On Today’s Agenda
Reserve Bank of Australia – Cash Rate Statement: the overnight money market rate of Australia’s Reserve Bank remained unchanged at 3.5% – the lowest level since the end of 2009. If the RBA will decide to lower the rate again, this news may affect the Australian dollar that is strongly correlated with gold and silver prices;
Great Britain 10 Year Bond Auction: the British government will issue a bond auction; in the recent bond auction, which was held at the second week of September, the average rate reached 1.83%;
Australian Trade Balance: The upcoming report will refer to August. In the previous report, the seasonally adjusted balance of goods and services expanded its deficit to $556 million in July. The export of non-monetary gold fell by $420 million (25%); if the gold exports will continue to fall in August, it might suggest a decrease in demand for non-monetary gold (see here last report);
Currencies / Bullion Market – October Update
The Euro/ USD rose on Monday by 0.24% to 1.289. During last month, the Euro/USD rose by 2.23%. Alternatively, several other currencies including Aussie dollar appreciated yesterday against the USD by 0.16%. The correlation between gold and Euro remains mid-strong and positive: during September, the linear correlation between the gold and EURO/USD was 0.62 (daily percent changes); the relation between gold and USD/CAD is -0.75. This week the bullish market sentiment towards the Euro and other risk currencies is likely to pull up gold and silver. Currently, the Euro/USD is trading up.
Current Gold and Silver Rates as of October 2nd
Gold (November 2012 delivery) is traded at $1,780.7 per t oz. a $2.6 or 0.15% decrease as of 07:19*.
Silver (November 2012 delivery) is at $34.87 per t oz – a $0.082 or 0.23% decrease as of 07:19*.
Daily Outlook for October 2nd
The prices of precious metals started off the week on a positive note, perhaps over the recent speech of Bernanke and the positive news of the growth in manufacturing PMI that pulled up commodities and stock prices.. Today’s publications of the RBA rate decision and Australian trade balance could affect the Aussie dollar, which is strongly linked with bullion rates. In Europe, Spain is still facing problems: The recent budget proposal helped rally the Euro but there are still perils Spain is facing. The country might need to bailout its commercial banks after German ministers stated that the bailout fund will only by applicable for new banking problems. Finally, if the Euro and Aussie dollar will continue to rally it could also pull up the prices of bullion.
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
05:30 – Reserve Bank of Australia – Cash Rate Statement
Tentative – Great Britain 10 Year Bond Auction
2:30 – Australian Trade Balance
13:15 – ADP estimate of U.S. non-farm payroll
15:00 – U.S. ISM Non-Manufacturing PMI
02:30 – Australian Retail Sales
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