The prices of gold and silver tumbled down yesterday. Their sharp fall coincided with the depreciation of the many “risk related currencies” such as Euro and Aussie dollar against the USD and other commodities prices such as crude oil. Nonetheless, it seems that the publication of the minutes of the January FOMC meeting reheated the speculations around the future steps of the FOMC and when and how the Fed will ease down its current quantitative easing plan. If the Fed will cut the QE3 program – it currently stands on purchasing every month $85 billion of long terms securities and mortgage backed securities – or put a time limit on this asset purchase program, gold and silver prices are likely to tumble down as this news will lower the risk related to the potential devaluation of the USD. Yesterday, it was reported that housing starts declined in January. This news may have had a modest effect on the financial markets. The U.S PPI inched up by 0.2%. Will gold and silver prices keep falling? Currently, gold and silver are trading down. On today’s agenda: Flash German, French and Euro Zone Manufacturing PMI, Spanish 10 Year Bond Auction, U.S Core Consumer Price Index, U.S. Jobless Claims, U.S. Existing Home Sales, Philly Fed Manufacturing Index and Governor Stevens speaks.
Here is a short outlook for precious metals for Thursday, February 21st:
Precious Metals – February Update
On Wednesday, the price of gold fell again by 1.67% to $1,577.5 – the lowest price since July 2012; Silver also plunged by 2.71% to $28.62 – the lowest since August 2012. During the month, gold decreased by 5%; silver, by 8.66%.
In the chart below are the normalized prices of gold and silver during February (normalized to 100 as of January 31st). The prices have had a sharp downward trend during the month.
The ratio between the two precious metals increased again on Wednesday to 55.11. During the month, the ratio rose by 4% as gold out-performed silver.
The gold and silver futures volumes of trade have bounced back on Wednesday (compared to Tuesday) to 280 thousand and 137 thousand, respectively. These numbers are also higher than average volume recorded during February. Perhaps the publication of the minutes of the FOMC yesterday contributed to the spike in the market volume. If the volume will remain high, it could suggest we will keep seeing sharp shifts in precious metals prices as was the case yesterday. The chart below shows the volume of trading gold and silver futures in the CME during February.
On Today’s Agenda
Flash German, French and Euro Zone Manufacturing PMI: In the previous report regarding January 2013, the German PMI rose to 48.8 i.e. the manufacturing conditions are still contracting at a slightly slower rate. This report serves as an indicator to the economic developments of the Euro Area’s leading economies’ manufacturing conditions; this news, in turn, may affect the Euro/USD currency pair and consequently also precious metals;
Spanish 10 Year Bond Auction: the Spanish government will issue another bond auction; in the previous bond auction, which was held at the first week of December, the average rate reached 5.29% – the lowest rate in over six months; if the rate will continue to fall, it could suggest that the EU is regaining the confidence of traders;
U.S Core Consumer Price Index: This monthly report will refer to the main developments in the core consumer price index for January 2013. According to the U.S Bureau of Labor statistics during December, the CPI remained unchanged (M-o-M); the core CPI edged up by 0.1%; the core index rose over the past twelve months by 1.9%.
U.S. Jobless Claims Weekly Report: in the previous report the jobless claims declined again by 27k to reach 341k; this upcoming weekly report may affect the U.S dollar and consequently commodities and stocks markets;
U.S. Existing Home Sales: in the latest report regarding December 2012 the number of homes sold fell to a seasonally adjusted annual rate of 4.94 million houses; if this trend will continue it may pull down the USD;
Philly Fed Manufacturing Index: This monthly survey presents an estimate for the progress of the US manufacturing conditions. In the previous January survey, the growth rate fell from +8.1 in December to -5.8 in January (the previous Philly Fed review);
Governor Stevens speaks: Reserve Bank of Australia Governor will give a speech before the House of Representatives; he might refer to the recent RBA monetary policy meeting, in which the RBA left the policy unchanged; this speech may influence Aussie dollar traders;
Currencies / Bullion Market – February Update
The Euro/ USD changed direction and fell on Wednesday by 0.77% to 1.3283. During the month, the Euro/USD declined by 2.18%. Moreover, some currencies such as Canadian dollar and Aussie dollar also sharply depreciated yesterday against the USD by 0.54% and 0.98%, respectively. The recent depreciation of these risk related currencies may have influenced precious metals traders. The correlations among gold, Aussie dollar and Japanese yen remained stable in recent weeks: during January/February, the linear correlation between gold and AUD/USD reached 0.39 (daily percent changes); the linear correlation between the gold and USD/CAD reached -0.21 (daily percent changes). These mid-strong correlations suggest the developments in gold and silver markets were partly affected or resulted from the shifts in the foreign exchange markets. Thus, if the Euro and other currencies will continue to depreciate against the USD, they might adversely affect gold and silver.
Current Gold and Silver Rates as of February 21st
Gold (short term delivery) is traded at $1,567.8 per t oz. a $10.3 or 0.65% decrease as of 07:09*.
Silver (short term delivery) is at $28.53 per t oz – a $0.10 or 0.34% decrease as of 07:09*.
(* GMT)
Daily Outlook for February 21st
Prices of precious metals tumbled down yesterday. The U.S dollar sharply appreciated against leading currencies yesterday, which could have contributed to the sharp fall of bullion rates, but I think the shifts in the foreign exchange markets were the second chair in the decline of precious metal prices during yesterday. The FOMC minutes may have also played a role in the sharp fall in precious metals prices yesterday and could keep have some lingering effects during the day. The upcoming U.S reports including CPI, jobless claims, and Philly Fed Manufacturing could affect not only the USD but also precious metals prices. If these reports will show growth in the U.S economy, they could pressure down the prices of precious metals. Finally, if the Euro and other “risk currencies” will continue to depreciate during the week against the USD, they might pull down gold and silver.
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
Today
08:30 – Flash German, French and Euro Zone Manufacturing PMI
Tentative – Spanish 10 Year Bond Auction
13:30 –U.S Core Consumer Price Index
13:30 – U.S. Jobless Claims Weekly Report
15:00 – U.S. Existing Home Sales
15:00 – Philly Fed Manufacturing Index
22:30 –Governor Stevens speaks
Tomorrow
09:00 – German Business Climate Survey
13:00 – Canada’s core CPI
13:30 – Canada Retails Sales
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