The prices of gold and silver rallied on Monday. Will this rally continue? The recent news from the U.S is that the fiscal cliff was averted. This news received the final confirmation as Congress approved the plan to increase taxes on household making over $400k per year. Despite this new, President Obama will still need to augment the debt ceiling in February – it currently stands on $16.4 billion. This is another uncertainty that could contribute to the market volatility in the weeks to follow. In the meantime, the financial market might start the day on a positive note as this last minute voting in the Senate brought some unexpected optimism. But will this rally be short lived? According to a recent report, China Manufacturing PMI rose again and reached 50.6 as of December. Currently, the price of gold and silver are rising. On today’s agenda: U.S manufacturing PMI along with PMI reports of France, GB and Spain.
Here is a short outlook for precious metals for Tuesday, January 2nd:
Precious Metals – January Update
On Monday, the price of gold hiked by 1.2% to $1,674.8; Silver price also rose by 0.85% to $30.17. During the month, gold slipped by 2.11%; silver, by 9.13%.
In the chart below are the developments in the normalized prices of precious metals during November and December (normalized to 100 as of November 30th). During recent weeks, the prices of precious metals have had a downward trend.
The ratio between the two precious metals slightly rose to 55.51. During the month, the ratio rose by 7.72% as gold out-performed silver.
The gold and silver futures volumes of trade have slightly changed on Monday to 96 thousand and 20 thousand, respectively. These numbers are lower than the volume traded a couple of weeks back. 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.
On Today’s Agenda
U.S. Manufacturing PMI: During November 2012 the index declined to 49.5%, which means the manufacturing is contracting; this index may affect foreign exchange rates, and precious metals markets;
Spain and Italy’s Manufacturing PMI: During November the index reached 45.3% and 45.1%, respectively. These data suggest the manufacturing is still contracting in these economies;
GB Manufacturing PMI: This report will refer to Great Britain’s manufacturing sector in December. In November the index rose to 49.1%. This rate means the manufacturing sector is contracting at a moderately slower pace; this index might affect GB Pound, which tend to be linked with commodities rates;
Currencies / Bullion Market – January Update
The Euro/ USD slipped on Monday by 0.13% to 1.3193. During December, the Euro/USD rose by 1.59%. Conversely, some currencies such as Aussie dollar depreciated during December against the USD by 0.33%. The low volatility and unclear trend of these “risk currencies” didn’t’ seem to affect the direction of bullion. The correlations among gold, Euro and Aussie have remained low in recent weeks: during December, the linear correlation between gold and Euro /USD reached -0.08 (daily percent changes); the linear correlation between the gold and AUD /USD was -0.014 (daily percent changes). These weak relations might suggest the recent movement in gold and silver weren’t affected by the developments in the foreign exchange markets. Nonetheless, if the Euro and other risk currencies will rise against the USD, they are might positively affect precious metals.
Current Gold and Silver Rates as of January 2nd
Gold (short term delivery) is traded at $1,683 per t oz. a $8 or 0.48% increase as of 06:28*.
Silver (short term delivery) is at $30.66 per t oz – a $0.43 or 1.42% increase as of 06:28*.
Daily Outlook for January 2nd
Prices of precious metals start the week on a positive note and both gold and silver rose after they had decline in recent weeks. My guess gold and silver might continue to rise today along with the rest of the markets following the recent positive development regarding the Congress voting to avoid the fiscal cliff. The low trading volume could have contributed to the sharp move in the prices of precious metals. Today, as we are slowly getting back to work, the volume might remain low. This, along with the uncertainty around the outcome in the voting in Congress over the fiscal cliff could lead to sharp shifts in the prices of gold and silver. The upcoming reports regarding the manufacturing PMI for U.S, GB, Italy and Spain could affect the USD, British Pound and Euro, respectively. If these reports will show these economies are expanding, this scenario could positively affect commodities prices. Nonetheless, I still guess the speculation around the U.S budget talks is likely to crowd out the potential effect of other news items on precious metals. Finally, if the Euro and other “risk currencies” will increase against the USD, they might also positively affect gold and silver.
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
08:15 – Spain and Italy’s Manufacturing PMI
09:30 – GB Manufacturing PMI
15:00 – U.S. Manufacturing PMI
Day after Tomorrow
08:00 – KOF Economic Barometer
09:00 – Euro Area Monetary Development
13:15 – ADP estimate of U.S. non-farm payroll
13:30 – U.S. Jobless Claims Weekly Report
19:00 – Minutes of December’s FOMC Meeting
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