The prices of gold and silver changed direction again and this time tumbled down. It seems the recent FOMC decision didn’t help rally precious metals prices. Yesterday, several U.S reports came out: retail sales rose by 0.3% during November; the PPI sharply fell by 0.8% last month; jobless claims declined again 29k to reach 343k. These reports suggest the U.S economy is progressing and the inflation isn’t expanding. Will gold and silver bounce back? Currently, the prices of gold and silver are rising. On today’s agenda: EU Economic Summit (second day), German flash Manufacturing PMI, Euro Area CPI and U.S core CPI.
Here is a short outlook for precious metals for Friday, December 14th:
Precious Metals – December Update
On Thursday, the price of gold fell by 1.21% to $1,695.9; Silver price also plunged by 4.18% to $32.3. During the month, gold declined by 0.88%; silver, by 2.73%.
As seen below, the chart shows the shifts in the normalized prices of precious metals during recent weeks (normalized to 100 as of November 16th). During recent weeks the prices of silver and gold decreased.
The FOMC announced on Wednesday it will expand QE3 by start purchasing at the beginning of 2013 long term treasuries securities at a rate of $45 billion per month. This plan will substitute operation twist and will come in addition to the $40 billion mortgage backed securities purchase plan.
The table below shows the bullion markets’ reactions to the news of the FOMC during 2012. As seen, in the September FOMC meeting bullion rates hiked on the day of the announcement. This time, the prices of gold and silver slightly rose on the day of the announcement but fell the next day. This reaction is similar to the market reaction in June following the Fed’s decision to extend operation twist.
On Today’s Agenda
U.S Core Consumer Price Index: According to the U.S Bureau of Labor statistics during October, the CPI edged up by 0.1% (M-o-M); the core CPI also edged up by 0.2%; the core index rose over the last twelve months by 2%.
German flash Manufacturing PMI: This survey examines the changes (on a monthly basis) of Germany’s manufacturing sectors. In the recent report for October 2012, the manufacturing PMI edged up from 45.7 in September to 46.8 in October; this means, the manufacturing is still contracting only slightly slower;
Euro Area CPI: according to the recent report the annual CPI edged down to 2.5%, which is slightly higher than ECB’s target inflation; if the inflation will decline again, it could raise the odds of ECB cutting its cash rate in the future;
Currencies / Bullion Market – December Update
The Euro/ USD remained unchanged on Thursday at 1.3077. During the month, the Euro/USD rose by 0.7%. Several currencies such as Aussie dollar depreciated yesterday against the USD by 0.26%. The correlations among gold, silver Euro and Aussie have weakened in recent days: during November/December, the linear correlation between gold and Euro /USD reached only 0.118 (daily percent changes); the linear correlation between the gold and AUD /USD reached 0.11 (daily percent changes). Thus, if the Euro and other risk currencies will decline against the USD, they are likely to pull down gold and silver.
Current Gold and Silver Rates as of December 14th
Gold (short term delivery) is traded at $1,697.7 per t oz. a $1.1 or 0.06% increase as of 23:32*.
Silver (short term delivery) is at $32.61 per t oz – a $0.25or 0.77% increase as of 23:32*.
Daily Outlook for December 14th
The prices of gold and silver changed direction and plunged yesterday despite the launch of the extended QE3. This reaction might imply many gold and silver investors have cashed their investment in precious metals as these metals haven’t performed well during the year. Moreover, perhaps bullion investors are still waiting for the outcome of the budget talks in Congress and the ramifications of the fiscal cliff.
The upcoming reports reading U.S. CPI, U.S. German flash Manufacturing PMI and Euro Area CPI could affect the USD and Euro, respectively. If the core CPI will rise, this could also pull up commodities prices. Finally, if the Euro and other “risk currencies” will decline today against the USD, they are likely to adversely affect precious metals.
Here is a reminder of the top events and publications that are scheduled for today (all times GMT):
08:30 – German flash Manufacturing PMI
10:00 – Euro Area CPI
13:30 –U.S Core Consumer Price Index
For further reading: