Gold and silver prices changed direction and rose yesterday: silver, even more than gold, sharply increased by 4.5% and thus it completed an 8.4% rally in the past five business days. Will this silver rally continue? ECB will announce today the second LTRO, this might affect the precious metals markets via the Forex market. Currently gold and silver prices are sharply down. Today there are several reports and news items worth mentioning including: the KOF Economic Barometer report, the Euro Area Annual Inflation, the Second U.S GDP 4Q 2011 Estimate the China Manufacturing PMI and the testimony of Bernanke( Update: Bernanke in his testimony said “At present… sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives” In short he doesn’t see the Fed changing its policy in the short term and didn’t indicate of QE3 – The metals market soon reacted and plummeted).
Here is a short analysis on gold and silver for Wednesday, February 29th:
Gold and Silver– February Update
Gold price rose on Tuesday by 0.76% to $1,788.4; silver even more than gold sharply increased by 4.5% to $37.21. During February, gold rose by 2.76% and silver by 11.85%.
The chart below presents the developments of gold and silver during the month (prices are normalized to January 31st).
The ratio between gold and silver sharply fell during Tuesday, February 28th and reached 48.07 – the lowest level in months. During February the ratio declined by 8.13% as silver has outperformed gold. In the chart below are the changes in this ratio during February.
The sharp gains in silver seem to be more than just driven by the increase in price of gold. The rally of silver in the past few days (it added 8.4% to its value since February 22nd) seems to be more a speculative movement that is independent of the shifts in other related financial markets such as Forex, Stocks and other commodities. Recall that back in 2011 between February and April silver rose by nearly 80% and reached a record high of $48.6 on April 29th, 2011. The price soon plummeted during May after CME raised the margins on silver to cool down the market. Therefore if the market will heat up again very fast it might prompt CME to raise margins again.
St. Deviation of Gold and Silver
During the past several months there has been a drop in the volatility of gold and silver prices as their standard deviations have decreased; as of February they have reached their lowest level in recent months. This means that for the time being the volatility isn’t high so it lowers the chances of another CME intervention.
European Debt Crisis Update
ECB will announce today the second three-year loan to European commercial banks. Along with the LTRO 1, the total LTRO rescue fund could reach as much as €1 trillion (nearly $1.35 trillion). This LTRO plan helped rally the Euro and is probably behind the successful sovereigns’ debt auctions of leading EU countries such as Italy, France and Spain.
Once the announcement will be made it could affect he Euro, which in turn may affect the direction of commodities prices including gold and silver prices.
On Today’s Agenda
Bernanke Testifies: following the recent FOMC decision to lengthen the pledge of keeping rates low until late 2014, the speculations around another stimulus plan remains high. The Chairman of the Federal Reserve will testify before the Committee on Banking, Housing, and Urban Affairs, of the U.S. Senate; the title of the speech is “the Housing Market”;
Euro Area Annual Inflation: the inflation in Euro Area reached 2.7% in January, while to core CPI reached 1.6%. If the inflation rate will continue to fall, it may raise the chances of an additional ECB interest rate cut;
Second U.S GDP 4Q 2011: This will be the second estimate of U.S’s fourth quarter 2011 real GDP growth. In the first estimate for 4Q2011 the GDP growth rate reached 2.8%, compared with 1.8% increase at 3Q2011;
KOF Economic Barometer: this report offers an estimate of the Swiss economy in the months to come;
China Manufacturing PMI: according to the Manufacturing PMI report regarding January the Manufacturing PMI bounced back and increased to 50.5; if this upward trend will continue, this might also positively affect commodities prices;
Forex / Gold & Silver Market – February
The Euro/U.S Dollar slightly rose on Tuesday by 0.46% to 1.3458. During February Euro/U.S Dollar increased by 2.87%; furthermore, the Aussie dollar also slightly appreciated against the U.S. dollar by 0.11%. Since these two currencies are historically correlated with the developments of precious metals prices, If the Euro and Aussie dollar will trade up during the day especially after the news of the second LTRO will come out; it could indicate that gold and silver will follow and also trade up. Currently, the Euro/USD is slightly falling.
Current Gold and Silver Prices February 29th
Gold (March 2012 delivery) is traded at $1,719.1 per t oz. a $69.3 or 3.87% decrease as of 16:31*.
Silver (March 2012 delivery) is at $34.49 per t oz – a $2.715 or 7.3% decrease as of 16:31*.
Gold and Silver Daily Outlook
Gold and silver prices sharply rose yesterday and silver, even more than gold demonstrated a sharp gain. Today the upcoming LTRO 2 announcements might affect the direction of major currencies and consequently affect precious metals prices. The U.S., EU and Chinese reports to be published today could also affect forex and commodities markets as indicated above. Finally, the testimony of Bernanke seem to affect very promptly the direction of the US dollar and gold and silver prices to decline as indicated above.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
10:30 – KOF Economic Barometer
10:00 – Euro Area Annual Inflation (February)
13:30 – Second U.S GDP 4Q 2011 Estimate
15:00 – Bernanke Testifies
15:30 – EIA Petroleum Stockpiles Report
2:00– China Manufacturing PMI
13:30 – Department of Labor Report – U.S. Unemployment Claims
15:00 – Bernanke Testifies
15:00 – U.S. ISM Manufacturing PMI
15:30 – EIA U.S. Natural Gas Market Report
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