Major stock markets around the world including S&P500, NASDAQ and Hang Seng recorded sharp falls in their indexes, while the US dollar appreciated very sharply against major currencies; what about gold and silver prices? They fell yesterday as well. What is next for gold and silver prices? Today, the US labor report will be published, the Canadian employment report and Canadian building permits.
Let’s examine the precious metals market for today, August 5th:
Gold and silver prices –August
Gold price changed direction again and fell yesterday by 0.44% and reached $1,659. Silver price sharply declined by 5.57% to $39.43.
During August, gold price increased by 1.7%, and silver price fell by 1.7%.
The chart below shows the normalized gold and silver prices (July 12th 2011=100). As seen below, gold and silver prices rose very sharply during the first few days of August up to yesterday.
The gold to silver ratio: the ratio between gold and silver prices starts changes direction again and rose very sharply yesterday to 42.07 as silver price fell very sharply. During August gold price has outperformed silver price as the ratio inclined by 3.4%.
BOJ expanded monetary policy
The Bank of Japan announced yesterday to increase its total asset purchasing program, by adding 10 trillion yen (roughly $126 billion) from 40 trillion yen to 50 trillion yen. This means that the BOJ will further “print Yen” which will reduce its value compared to other major currencies including US dollar. This news had an immediate reaction in the forex market as the USD to Yen exchange rate rose very sharply yesterday by 2.37% and reached 78.886. This shift also affected the position of US dollar against other major currencies as it appreciated against the Euro and Australian dollar. This reaction had a negative effect on gold and silver prices, and curbed the rally of gold and silver prices.
S&P500 / Gold & silver prices – August update
The S&P500 along with other stock indexes from around the world fell very sharply yesterday over the concerns of US falling into a double dip recession. This reaction dragged along with it all major commodities including gold and silver. The correlation between bullion prices and S&P500 isn’t reliable, but yesterday the falls in the stock markets may have also dragged along major commodities. The chart below shows the changes in S&P500, gold price and silver price during August (normalized to July 29th=100).
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate sharply declined yesterday by 1.61%; the US dollar also appreciated against other currencies including the AUD and YEN. The drop in the Yen is probably one of the reasons for the appreciation of US dollar against other currencies. If the US dollar will continue to appreciate during the day, this might continue to affect the recent rally of gold and silver prices. On the other hand, the weak correlations of gold and silver prices with major currencies during July might suggest that the recent reactions of US dollar will have a short term effect on gold and silver prices.
U.S employment report
Last month the U.S. employment report showed that the labor force rose at a much slower pace than in the past few months, as the number of non-farm employees increased during June by only 18,000 compared with an increase of 25,000 during May. The current expectations are that this trend will continue in July; if this will be the case and we are headed towards another disappointing labor report, the US dollar might change direction and drop which could strengthen gold and silver prices.
Current Gold and Silver prices
The precious metals prices are currently traded with mixed in the European market:
The current gold price short term future (September 2011 delivery) is traded at $1,661.4 per t oz. a $2.4 or 0.14% increase as of 08:17*.
Current silver price, short term futures is at $39.245 per t oz – a $0.186 or 0.47%, decline as of 08:19*.
The current ratio of gold to silver prices is at 42.32.
Gold and silver prices Outlook:
Gold and silver prices changed direction yesterday due (in part) to the appreciation of US it seems that the recent news from Japan will continue to curb the rally of gold and silver prices during the day; this effect, however is likely to dissipate very soon especially if the US labor report will show no improvement; and if so, the rally of gold and silver prices is likely to resume..
Here is a reminder of the top events and reports that are planed for today (all times GMT):
12:00 – Canada unemployment rate and employment report
13.30 – Canada building permits
13.30 – U.S. unemployment rate report & non-farm employment change
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.