The prices of gold and silver changed direction and tumbled down on Thursday. The recent release of the minutes of the FOMC meeting may have contributed to the tumble in precious metals prices. Moreover, the expectations that the upcoming U.S employment report will be higher than expected (U.S employment grew by 155k) may also pull down the prices of gold and silver today. Currently, the prices of gold and silver are declining. On today’s agenda: U.S. Non-Farm Payroll Report, Euro Area Flash Estimate of Annual Inflation, Canada’s Employment Report, U.S. ISM Non-Manufacturing PMI and U.S Factory Orders .
Here is a short outlook for precious metals for Friday, January 4th:
Precious Metals – January Update
On Thursday, the price of gold changed direction and fell by 0.84% to $1,674.6; Silver price also tumbled down by 1.03% to $30.69. During the week, gold edged down by 0.01%; silver rose by 1.71%.
In the chart below are the shifts in the normalized prices of precious metals during December and January (normalized to 100 as of November 30th). During recent weeks, the prices of precious metals remained nearly unchanged.
The ratio between the two precious metals rose to 54.57. During the week, the ratio fell by 1.7% as gold under-performed silver.
Minutes of the FOMC and Future Meeting
Yesterday, the FOMC published the minutes of the December meeting. In the minutes the FOMC members raised the question of how long will the current $85 billion per month purchase program continue. Some raised their concern regarding the eventual conclusion of this purchase program:
” … a few indicated the need for additional consideration of the implications of such purchases for the eventual normalization of the stance of monetary policy and the size and composition of the Federal Reserve’s balance sheet.”
If the Fed will decide to the end this purchase program soon, this could lead to the drop in gold and silver prices as it will end the expansion of the U.S money base and the potential devalue of the USD. The FOMC decided to hold another meeting January 29-30, 2013.
On Today’s Agenda
U.S. Non-Farm Payroll: the number of non-farm payroll employment rose by 146k in November; the U.S unemployment rate slipped to 7.7%; if the upcoming report will continue to show growth of well above 120 thousand (in additional jobs), this may lower the odds of the Fed intervening again in the markets and reduce the risk around the future growth of the U.S economy; this report may affect the prices of gold an silver (see here my last review on the U.S employment report). The table below shows the recent results of the non-farm payroll reports and the reaction of gold and silver prices on the day of the reports.
German Retail Sales: This monthly report will present the changes in German retail sales during December. In November 2012, retail sales decreased by 2.8% – lower than many had anticipated; if this report will decline again then it might weaken the Euro;
Euro Area Flash Estimate of Annual Inflation: the inflation in Euro Area slipped again to 2.2% during November. If the upcoming inflation rate estimate will decline again, it may raise the chances of ECB cutting its interest rate next week;
Canada’s Employment Report: In the recent employment update for November 2012, unemployment slipped to 7.2%; the employment rose by 59k during the month. The upcoming report might affect the Canadian dollar;
U.S. ISM Non-Manufacturing PMI: During November this index edged up to 54.7% – this means the non-manufacturing is growing and at a slightly faster rate than in the previous month; this index may affect forex and commodities trading;
U.S Factory Orders: in the previous report factory orders rose by 0.8%; this report will offer some insight to the progress of the U.S economy and could affect the direction of the U.S dollar;
Currencies / Bullion Market – January Update
The Euro/ USD fell on Thursday by 1.05% to 1.3050. During the week, the Euro/USD declined by 1.26%. Moreover, some currencies such as Aussie dollar also depreciated yesterday against the USD by 0.37%. The fall of these “risk currencies” coincided with the decline of bullion. The correlations among gold, Euro and Aussie have remained low in December and January: during recent weeks, the linear correlation between gold and Euro /USD reached -0.11 (daily percent changes); the linear correlation between the gold and AUD /USD was 0.03 (daily percent changes). These weak correlations might suggest the recent changes in gold and silver weren’t affected much by the shifts in the foreign exchange markets. Nonetheless, if the Euro and other risk currencies will continue to fall against the USD, they might adversely affect precious metals.
Current Gold and Silver Rates as of January 4th
Gold (short term delivery) is traded at $1,650 per t oz. a $23.4 or 1.42% decrease as of 08:10*.
Silver (short term delivery) is at $29.63 per t oz – a $1.09or 3.55% decrease as of 08: 10*.
Daily Outlook for January 4th
Prices of precious metals changed direction and fell yesterday. I suspect the markets will continue on this path and precious metals will further fall today. The recent news regarding the uncertain path the FOMC will take with its purchase program and the expected growth in employment for December in the U.S are likely to weaken bullion rates and strengthen in the USD. The upcoming reports regarding German Retail Sales, U.S Factory Orders and Canada’s Employment Report could affect the Euro, USD and Canadian dollar, respectively. If these reports will show these economies are expanding, this scenario could pull up commodities prices. Nonetheless, I still guess the speculations around the future debates of U.S policymakers on raising debt ceiling, the recent minutes of the FOMC and the U.S employment report are likely to crowd out the potential effect of other news items on gold and silver. Finally, if the Euro and other “risk currencies” will continue to fall against the USD, they might also adversely affect gold and silver.
Here is a reminder of the top events and publications that are scheduled for today (all times GMT):
08:00 – German Retail Sales
10:00 – Euro Area Flash Estimate of Annual Inflation
13:30 – Canada’s Employment Report
13:30 – U.S. Non-Farm Payroll Report
15:00 – U.S. ISM Non-Manufacturing PMI
15:00 – U.S Factory Orders
For further reading: