Gold and silver prices sharply declined yesterday along with the rest of market including crude oil prices, Euro, and major stock market indexes. The recent news from Europe including the recent rise in ECB’s balance sheet to a record high €2.73 trillion, partly due to the recent lending to EU banks may have helped pull down the Euro. The concern that this expansion will result in a devaluation of the Euro may continue to affect the forex markets and consequently may also affect precious metals prices. Furthermore, Italy managed to sell €7 billion worth of debt in bonds, which is still nearly €1.5 below Italy’s target. Currently, gold and silver are traded sharply down. Today, the Monetary Developments in the Euro Area report will be published, the U.S. Unemployment Claims report and U.S. Pending Home Sales report.
Here is a market outlook of precious metals prices for today, December 29th:
Gold and Silver Prices –December Update
Gold price sharply declined on Wednesday by 1.97% to $1,564.1; silver price also plummeted and shed 5.24% off its price to reach $27.23. The chart below presents the development of gold and silver prices during December (normalized gold and silver prices to November 30th 2011). During December gold price decreased by 10.6% and silver price by 17.0%. The last time gold and silver prices fell by such sharp rates was back in September 2011 when gold price declined by 11.4% and silver price by 28%.
Preliminary CPI in Germany: This report presents the changes in the annual rate of consumer price index for December 2011. In the recent report of November, the annual growth rate of the CPI is 2.4% in annual terms compared with November 2010;
Monetary Developments in the Euro Area: In the previous report, the annual growth rate for M3 sharply declined to 2.6%. The M1 also declined to 1.7%. On the other hand, the annual growth rate of loans to private sector grew to 2.7% in October. If the M1 and M3 will continue to declined in November it could serve as another indicator for the slowdown in the Euro Area inflation and may affect ECB’s monetary policy (see here the last report);
U.S. Unemployment Claims: initial claims decreased by 4,000 to 364,000 claims for the week ending on December 17th; the number of insured unemployment sharply declined by 79k to 3.546 million during the week of December 10th;
U.S. Pending Home Sales: This report shows the major changes in pending home sales in the U.S. for November 2011; in the October report the pending home sales index sharply rose by 10.4%. This report will be another indicator for the economic progress of American real estate market;
Forex Trading / Gold & Silver Prices – December
The Euro to U.S Dollar sharply fell on Wednesday by 1% to reach 1.2941. Furthermore, other forex exchange rates such as the Australian dollar and CAD also depreciated against the U.S dollar. If major currencies will continue to depreciate against the U.S. dollar, it may also affect gold and silver prices to decline.
U.S. Treasuries / Gold & Silver Prices – December
The U.S. 10-year Treasury yield sharply fell on Wednesday by 0.09 percent points to 1.93%; during December the 10 year treasury yield dropped by 0.15 percent point. This downward trend might indicate that the risk appetite in the markets has diminished. Furthermore, as seen in the chart below, during December there were strong positive correlations among the daily percent changes of U.S. 10 year notes yield and gold and silver prices (0.305 and 0.594, respectively). If the LT U.S. treasury yield will further drop, it may also continue to pressure down gold and silver prices.
The S&P500 index sharply fell on Wednesday by 1.25% to 1,249.64. During December, S&P500 index slightly roes by 0.21% during the month. As presented in the chart below, the S&P500 index continue to be strongly and positively correlated to gold and silver prices (during December the linear correlation was 0.628 and 0.724, respectively), so that if the stock market will decline, it may also indicate that gold and silver prices are likely to follow and decrease.
The major precious metals are currently declining in the American markets:
Current gold price per ounce short term future (January 2012 delivery) is traded at $1,532.10 per t oz. a $32 or 2.05% decrease as of 14:29*.
Current silver price per ounce short term future (January 2012 delivery) is at $26.465 per t oz – a $0.769 or 2.82% decrease as of 14:29*.
Gold and Silver Prices Outlook:
Gold and silver prices sharply fell yesterday and thus continued with their downward trend of the past several weeks. Yesterday’s falls coincided with the sharp drop in the Euro and GB pound against the U.S dollar over the concerns of the stability of the EU. Not only did precious metals prices plummeted yesterday, but also other indexes and prices sharply fell including crude oil prices, and American stock market indexes. I speculate the downward trend of precious metals prices will continue throughout the rest of the week. The upcoming reports including U.S. pending home sales and U.S unemployment claims might also adversely affect gold and silver prices if these reports will present a further improvement in the U.S. economy.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
09:00 – Monetary Developments in the Euro Area
Preliminary CPI in Germany
13:30 – Department of Labor Report – U.S. Unemployment Claims
15:00 – U.S. Pending Home Sales
2:00– China Manufacturing PMI
For further reading:
- Gold and Silver Prices Weekly Outlook for December 26-30
- Weekly Outlook for 26-30 December
- Where are Gold and Silver Headed in 2012?
About the Author: Lior Cohen, M.A in Economics, a commodities analyst and blogger at Trading NRG.