The prices of gold and silver changed direction and after they had declined on Monday, they have both edged up on Tuesday. The markets in NY remained closed during yesterday but the CME is expected to open today its trading floor in normal hours. Once the market will reopen, it could raise the volatility of precious metals prices. As many had anticipated, Bank of Japan expanded its monetary policy by adding fund to its asset purchase program. BOJ expanded the program by 11 trillion yen (roughly $138 billion). This cash injection should help increase the liquidity in the Japanese market. This news has strengthened the yen against other major currencies. The U.S consumer confidence report didn’t update yesterday – probably due to the Hurricane. Italy’s bond auction went well as the country managed to sell its entire 7 billion euro target at a lower than expected yields. Currently the prices of gold and silver are rising. On today’s agenda: German Retail Sales, Euro Area unemployment rate, U.S. Manufacturing PMI, Canada’s GDP, China Manufacturing PMI.
Here is a short outlook for precious metals for Wednesday, October 31st:
Precious Metals –October Update
On Tuesday, Gold changed direction and rose by 0.2% to $1,712; Silver also increased by 0.22% to $31.82. During the month, gold decreased by 3.48%; silver, by 7.99%.
As seen below, the chart shows the developments in the normalized prices of precious metals during the past month (normalized to 100 as of September 28th). During the past couple of weeks, both gold and silver have had a downward trajectory.
The ratio between the two precious metals edged down on Tuesday to 53.81. During the month the ratio increased by 4.89% as gold slightly out-performed silver.
Despite the different percent changes in gold and silver, the linear correlation of the two precious metal daily percent changes is still strong and positive, as indicated in the chart below. During the month the linear correlation of their daily percent changes reached its highest level in over two years, which means the two metals’ relation has tighten during October.
On Today’s Agenda
German Retail Sales: This monthly report will show the developments in German retail sales during October. In September 2012, retail sales rose by 0.3%; if this report will return to be negative then it might weaken the Euro;
U.S. Manufacturing PMI: During September 2012 the index increased to 51.5%, which means the manufacturing is growing; this index may affect forex, and commodities markets;
Euro Area unemployment rate: in August the rate of unemployment edged up to 11.4%. This mean there wasn’t any significant shift in the unemployment. If in the upcoming report there will be a sharp change in unemployment, it may affect the Euro;
Canada’s GDP by Industry: In the latest report regarding July, the real gross domestic product slightly rose by 0.1%. This report may affect the strength of the Canadian dollar currency which is strongly linked with commodities;
China Manufacturing PMI: According the recent report for September the Manufacturing PMI increased to 49.8; thus, China’s manufacturing sectors continue to contract but at a slower pace than in the previous month; if the index will rise again and even pass the 50 mark, this may positively affect commodities prices;
Currencies / Bullion Market – October Update
The Euro/ USD also rose on Tuesday by 0.43% to 1.2958. During the month, the Euro/USD increased by 0.77%. There are some positive reports of progress in Greece talks with troika so that Greece will receive its next cash injection. Further, some currencies such as Aussie dollar also appreciated yesterday against the USD by 0.41%. The correlation between gold and Euro remains mid-strong and positive: during September/October, the linear correlation between gold and EURO/USD reached 0.57 (daily percent changes); the linear correlation between the gold and AUD/USD was 0.43 (daily percent changes). My guess these currencies pairs will resume their downward trend in the weeks to cone; thus, if the Euro and other risk currencies will decline again against the USD, they are likely to drag down gold and silver. During the day, however, the recent positive news from Greece and recent decline in Spain’s long term bond yields suggest that the Euro may rise again. This could help pull up today the prices of bullion.
Current Gold and Silver Rates as of October 31st
Gold (November 2012 delivery) is traded at $1,717.9 per t oz. a $5.8 or 0.34% increase as of 14:29*.
Silver (November 2012 delivery) is at $32.175 per t oz – a $0.359 or 1.13% increase as of 14:29*.
Daily Outlook for October 31st
The prices of precious metals changed direction from Monday and edged up on Tuesday. The low volatility in the precious metal markets may have been, in part, due to the close markets in New York. The reopening of the trading floor in NY might have a modest effect in raising the volatility of precious metals prices. The recent decision of the BOJ could pull up the yen and thus also help rally commodities prices. If the talks between Greece government and troika will continue to be positive, this could help maintain the Euro and perhaps even pull it up today. The upcoming publication of U.S and China’s manufacturing PMI reports are likely to be the main events of the day. If U.S manufacturing will rise again, this could pull down the prices of gold and silver via the USD effect. Conversely, China’s manufacturing report could adversely affect commodities prices if the index will remain below the 50 point mark. Finally, if the Euro and other “risk currencies” will continue to rally during the day against the USD, then these currencies are likely to positively affect bullion rates.
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
08:00 – German Retail Sales
10:00 – Euro Area unemployment rate
13:30 – Canada’s GDP by Industry
15:00 – U.S. Manufacturing PMI
15:30 – U.S Crude Oil Stockpiles Report
02:00 – China Manufacturing PMI
09:30 – GB Manufacturing PMI
13:15 – ADP estimate of U.S. non-farm payroll
13:30 – U.S. Jobless Claims Weekly Report
17:30 – FOMC member Lockhart’s Speech
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