The prices of gold and silver continued their upward trend on Wednesday. This rally coincided with the rise in other financial markets including other commodities such as crude oil and U.S stock markets. This rise was mostly attributed to the market reaction to the U.S policymakers reaching an agreement on the tax hikes and averting from the fiscal cliff. Despite this agreement, the U.S will still need to raise the debt ceiling in February and decide on the budget cuts needed. These issues will plausibly raise the uncertainty in the markets in the weeks to follow. Yesterday, it was reported that the U.S manufacturing PMI rose to 50.7. This news may have also contributed to the rise in commodities prices. Currently, the price of gold is falling. On today’s agenda: Minutes of December’s FOMC Meeting, KOF Economic Barometer, Euro Area Monetary Development, ADP estimate of U.S. non-farm payroll (update: ADP shows a rise of 215k in December – higher than expected), and U.S. Jobless Claims (update: jobless claims rose by 10k to 362k).
Here is a short outlook for precious metals for Thursday, January 3rd:
Precious Metals – January Update
On Wednesday, the price of gold rose by 0.84% to $1,688.9; Silver price hiked by 2.77% to $31.01. During the week, gold rose by 0.73%; silver, by 3.01%.
In the chart below are the changes in the normalized prices of precious metals during December and January (normalized to 100 as of November 30th). During recent days, the prices of precious metals bounced back.
The ratio between the two precious metals fell to 54.46. During the week, the ratio fell by 1.54% as gold under-performed silver.
St. Deviation of Gold and Silver
The volatility of gold price declined in recent weeks while the volatility of silver rose. The shift in the volatility of these precious metals prices is represented by the changes in their respective standard deviations during the month compared to previous months: the standard deviations of gold and silver (daily percent changes) reached in December/January 0.79% and 1.99%, respectively.
On Today’s Agenda
Minutes of December’s FOMC Meeting: Following the December FOMC meeting, in which the Fed introduced its extension for QE3, the bullion market had only a very short term reaction to this news. The minutes of the recent FOMC meeting might add some additional insight behind this decision and the potential future steps of the FOMC especially in relation to the potential ramifications of the U.S fiscal cliff and the future FOMC meetings in 2013;
Euro Area Monetary Development: In the previous October report, the annual growth rate for M3 hiked to 3.9%; M1 also rose to 6.4%. Finally, the annual growth rate of loans to private sector also rose to -0.7%. This news suggests the EU economy isn’t growing; if this trend will continue it adversely affects the Euro/USD;
U.S. Jobless Claims Weekly Report: in the previous report the jobless claims declined again by 12k to reach 350k; this upcoming weekly report may affect the U.S dollar and consequently commodities;
KOF Economic Barometer: this report provides an outlook to the Swiss economy;
ADP estimate of U.S. non-farm payroll: update: ADP published its estimate for the upcoming U.S non-farm payroll change for December 2012 that will come out tomorrow. The recent update showed the employment grew by 215k last month,which was higher than anticipated. T his news is likely to pull down the prices of gold and silver.
Currencies / Bullion Market – January Update
The Euro/ USD slipped on Wednesday by 0.04% to 1.3188. During the week, the Euro/USD declined by 0.21%. Conversely, some currencies such as Aussie dollar sharply appreciated yesterday against the USD by 1.07%. This 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 December and January: during recent weeks, the linear correlation between gold and Euro /USD reached -0.10 (daily percent changes); the linear correlation between the gold and AUD /USD was 0.11 (daily percent changes). These weak correlations might suggest the recent developments in gold and silver weren’t affected much by the changes in the foreign exchange markets. Nonetheless, if the Euro and other risk currencies will resume their downward trend against the USD, they might adversely affect precious metals.
Current Gold and Silver Rates as of January 3rd
Gold (short term delivery) is traded at $1,672 per t oz. a $2.6 or 0.15% decrease as of 08:37*.
Silver (short term delivery) is at $31.05 per t oz – a $0.04or 0.12% increase as of 08:37*.
Daily Outlook for January 3rd
Prices of precious metals sharply increased during this week. Despite this recent rally, I suspect the markets will turn direction and the uncertainty around the U.S budget cuts and debt ceiling is likely to affect not only gold and silver but also other markets. The FOMC will release the minutes of the recent meeting. If the minutes will reveal any insight behind the future plans of the Fed, it might influence bullion traders. The upcoming reports regarding the Euro Area money development, U.S jobless claims could affect the USD and Euro, respectively. If these reports will show these economies are expanding, this scenario could positively affect commodities prices. Nonetheless, I still guess the sentiment towards the U.S spending cuts and debt ceiling increase is likely to crowd out the potential effect of other news items on gold and silver. Finally, if the Euro and other “risk currencies” will further decline against the USD, they might adversely affect gold and silver.
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
08:00 – 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
Day after Tomorrow
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: