The prices of both gold and silver continued to rally yesterday. Thus, they have completed a two day rise in prices. Their rally, however, didn’t seem to coincide with the developments in the forex markets as many risk currencies such as Euro and Aussie dollar remained virtually unchanged yesterday. The recent news came from the U.S Senate when Chairman of the Fed testified before the Committee on Banking, Housing, and Urban Affairs. In his testimony, Bernanke was very dovish and pointed out that the situation in the U.S warrants the Fed to maintain its current monetary policy. He didn’t offer any time limit on the asset purchase program. This news may have been among the factors for the spike in gold and silver prices. Despite this rally, Goldman Sachs still cut its outlook on the price of gold. Several U.S reports came out yesterday and showed signs of growth in the U.S: new home sales (opens pdf) soared by 15.6% in January compared to December 2012. Number of homes sold reached 437k. The consumer confidence index also spiked from 58.4 in January to 69.6 in February. These reports didn’t seem to curb the rally of precious metals prices yesterday. Will gold and silver continue to trade up today? Currently, the price of gold is falling. On today’s agenda: Bernanke will testify at Congress, German Consumer Climate, KOF Economic Barometer, Second GB GDP Q4 2012, Euro Area Monetary Development, Italian 10 Year Bond Auction, U.S Core Durable Goods, Pending Home Sales, ECB President Speaks, and Australia Private New Capital Expenditure .
Here is a short outlook for precious metals for Wednesday, February 27th:
Precious Metals – February Update
On Tuesday, the price of gold spiked by 1.82% to $1,615; Silver also increased by 0.94% to $29.26. During the month, gold decreased by 2.75%; silver, by 6.62%.
In the chart below are the normalized rates of gold and silver during February (normalized to 100 as of January 31st). The prices of gold and silver have risen from last week’s fall.
The ratio between the two precious metals rose on Tuesday to 55.19. During the month, the ratio rose by 4.15% as gold slightly out-performed silver.
The gold and silver futures volumes of trade increased on Monday to 190 thousand and 90 thousand, respectively. These numbers are lower than the volume traded during the last week. If the volume will rise in days to follow, this might lead to a rise in the volatility of the precious metal rates. The chart below shows the volume of trading gold and silver futures in the CME during February.
St. Deviation of Gold and Silver
Despite the sharp movement of bullion prices in recent days, their volatility is still lower than in the volatility recorded in the preceding months: the standard deviations of gold and silver (daily percent changes) were slightly lower than the standard deviations in the past several months.
On Today’s Agenda
German Consumer Climate: Gfk group will publish its German consumer climate index. If this report will continue to present a rise, it might pull up the Euro;
KOF Economic Barometer: this report provides an estimate to the Swiss economy;
Euro Area Monetary Development:. In the recent December report, the annual growth rate for M3 fell to 3.3%; M1 also declined to 6.2%. Finally, the annual growth rate of loans to private sector slipped at -0.7%. This news suggests the EU economy is contracting; if this trend will continue it may adversely affects the Euro/USD and consequently commodities;
Second GB GDP Q4 2012: This report will show the second estimate of the quarterly growth rate of the Great Britain economy during the fourth quarter of 2012; in the third quarter the British economy expanded by 1% (Q-2-Q);
Italian 10 Year Bond Auction: the Italian government will issue its monthly with bond auction; in the recent bond auction, which was held at the last week of January, the average rate reached 4.17% – the lowest rate in recent months;
U.S Core Durable Goods:. This report may indirectly indicate the developments in U.S. demand for commodities such as oil. As of December 2012, new orders of manufactured durable goods increased to $230.7 billion; if this report will present another rise in new orders then it could help pull up not only the USD but also commodities prices;
Bernanke’s Testimony: Bernanke will give another testimony, this time before the Before the Committee on Financial Services, U.S. House of Representatives. The title of the speech is “Semiannual Monetary Policy Report to the Congress“;
U.S. Pending Home Sales: This report shows the developments in pending home sales in the U.S. for January; in the recent report, the pending home sales index decreased by 4.3% (M-over-M). These data are another indicator for the changes in America’s housing market; if the housing data will show a drop in sales it may pull down the U.S dollar;
ECB President Speaks: Mario Draghi will give a speech in the Katholische Akademie, in Bayern. If Draghi will provide some insight behind the future plans of the ECB monetary policy or change his projection regarding the progress of the EU economy, the testimony could affect the path of the Euro;
Australia Private New Capital Expenditure: This quarterly report shows the changes in the private new capital expenditures and expected expenditures for the fourth quarter of 2012. As of the latest quarter, the seasonal adjusted total of new capital expenditure increased by 2.8% (Q-o-Q) and by 14.2% compared to the previous quarter in 2011. If this upward trend continues, it may positively affect the Aussie dollar, which tends to be strongly correlated with major commodities;
Currencies / Bullion Market – February Update
The Euro/ USD, on the other hand, inched down on Tuesday by 0.02% to 1.3061. During the month, the Euro/USD fell by 3.81%. Moreover, several other currencies such as the Canadian dollar and Japanese yen also depreciated yesterday against the USD by 0.14% and 0.28%, respectively. The recent depreciation of Euro and other currencies didn’t seem to curb the recovery of precious metals. The correlations among gold, Euro and Aussie dollar have weakened in recent days: during January/February, the linear correlation between gold and Euro/USD reached -0.003 (daily percent changes); the linear correlation between the gold and AUD/USD dropped to 0.20 (daily percent changes). These weak correlations might suggest the recent rise of gold and silver rates wasn’t related or resulted from the shifts in the foreign exchange markets.
Current Gold and Silver Rates as of February 27th
Gold (short term delivery) is traded at $1,613.6 per t oz. a $1.2 or 0.07% decrease as of 23:17*.
Silver (short term delivery) is at $29.4 per t oz – a $0.1 or 0.32% increase as of 23:17*.
(* GMT)
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
Today
07:00 – German Consumer Climate
08:00 – KOF Economic Barometer
09:00 – Euro Area Monetary Development
09:30 – Second GB GDP Q4 2012
Tentative – Italian 10 Year Bond Auction
13:30 – U.S Core Durable Goods
15:00 – U.S. Pending Home Sales
15:00 – Bernanke’s Testimony
17:30 – ECB President Speaks
00:30 – Australia Private New Capital Expenditure
Tomorrow
10:00 – Euro Area CPI
13:30 – Second U.S GDP 4Q 2012 Estimate
13:30 – U.S. Jobless Claims
02:00 – China Manufacturing PMI
For further reading:
- What Could Impede This Gold Company?
- Gold and Silver Outlook for February 25- March 1
- Weekly Outlook of Financial Markets for February 25 – March 1
- Gold and Silver Outlook for February
- Gold and Silver Yearly Outlook For 2013