The bullion market continues to heat up even after the House raised the US debt ceiling; this news strengthened the US dollar against other currencies, but the market seems to raise the ante and continues to bet on gold and silver; gold and silver prices are currently traded up. Today, the U.S. non-manufacturing PMI report will be published.
Let’s examine the precious metals market for today, August 3rd:
Gold and silver prices –August
Silver price also inclined by 1.99% to $40.09.
During August, gold price increased by 0.8%, and silver price remained unchanged.
There is also news from South Korea in which it has purchased nearly 25 tonnes of gold in the past couple of months; this purchase spree might also be among the reasons for the recent rally of gold prices.
The chart below shows the normalized gold and silver prices (July 12th 2011=100). As seen below, during the past three weeks silver price has substantially outperformed gold price, but in the last couple of days seem to have outperformed silver price.
The gold to silver ratio: the ratio between gold and silver prices remains near the 40-41 mark as in declined on August 2nd by 0.6% to 41.02. During August gold price has outperformed silver price as the ratio rose by 0.9%.
US rating – what’s up ahead?
Following the decision to raise US debt ceiling by $2.1 trillion, the aftermath of this decision is upon the US; this includes the future rating of the US economy. The current situation is that Moody’s and Fitch already said they won’t downgrade the triple A treasury debt rating of the U.S, but Standard and Poor’s didn’t clearly stated its position. There are high speculations on this matter, and if eventually Standard and Poor’s will downgrade the US’s rating it could further weaken the US dollar and strengthen gold and silver. In the meantime, FT reported that a Chinese rating agency downgraded the US’s credit rating from A- plus to A. If this news will have any impact on China’s acquisition of US treasury bonds, this might further weaken the demand for it and consequently also further strengthen gold and silver.
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate declined yesterday by 0.33%; the US dollar also appreciated against other currencies including the AUD and CAD. The appreciation of US dollar might be stem, in part, from the news of US raise debt ceiling, but this news affects gold and silver prices in a different direction: in the chart below are the linear correlations of US dollar with gold and silver prices (daily percent changes) during each month of 2011; the chart shows that every month in 2011 excluding July, gold and silver prices were positively correlated with Euro to US dollar exchange rate. But during July the correlation of gold price with Euro to US dollar was low and negative; this might suggest that the changes in the Euro to US dollar during the month didn’t affect gold and silver prices as these changes did in the past. Furthermore, this finding implies that even if the US dollar will further appreciate, gold and silver prices might further rise as they are driven by other forces than the changes in US dollar.
Current Gold and Silver prices
The precious metals prices are currently traded up in the European market:
The current gold price short term future (September 2011 delivery) is traded at $1,672.3 per t oz. a $27.8 or 1.69% increase as of 10:23*.
Current silver price, short term futures is at $41.190 per t oz – a $1.098 or 2.74%, incline as of 10:22*.
The current ratio of gold to silver prices is at 40.59.
Gold and silver prices Outlook:
Gold and silver prices continues its rally that had started back in July despite the news from the US of raising the debt ceiling; this might be driven from the slowdown in the US economy and the speculation around downgrading the US’s debt rating. These speculations are translated into gains in demand for gold and silver in the near future and consequently push gold and silver prices further up.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
15.00 – U.S. ISM Non-Manufacturing PMI
15:30 – EIA report about Crude oil inventories
13:30 – ECB conference Trichet speaks and Euro rate decision
13:30 – Department of Labor report – U.S. unemployment claims
15:30 – EIA report about Natural gas storage
Tentative – Bank of Japan – rate decision and monetary policy statement
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.