Gold and silver prices sharply inclined yesterday along with the rest of the markets. The ECB decided to keep interest rates unchanged. Currently, gold and silver prices are traded with moderate changes. Today, the U.S. Unemployment Rate & Non-farm Employment Report will be published and the Canada Employment Report. Here is a market outlook of precious metals prices for today, October 7th:
Gold and Silver Prices – October
Gold price sharply inclined on Thursday by 1.54% to $1,653.2; silver price also sharply increased by 6.33% to $32.01. The chart below shows the development of gold and silver prices in recent weeks (normalized gold and silver prices (September 16th 2011=100)). During October gold price inclined by 1.9%, and silver prices by 6.4%.
The ratio between gold and silver prices sharply tumbled on Thursday, October 6th to 51.65. During October, silver price inclined by a larger rate than gold price as the ratio decreased by 4.2%.
On Today’s Agenda:
U.S. Report Non-farm Employment Report: in the recent September report, the number of non-farm payroll employment remained unchanged during August; the last report didn’t show any improvement and may have helped gold and silver prices to increase during the first few days of September. There is used to be a negative correlation between the news on the U.S. labor report and the daily change on gold price. The table below demonstrates the relation between these items as of 2011:
The table above shows the dates of the announcements of the U.S. labor report, the change in employment (column A), and the daily percent change on the day the labor report was published for gold and silver prices (column C and D, respectively). Column B gives 1 for good news from the labor report (i.e. employment grew above 110k) and 0 for bad news (below 110k). The linear correlation of gold and labor report news and silver and labor report news show strong negative correlations.
These correlations aren’t significant, but provide an indicator that the news on the U.S. labor force continues to be negatively correlated to gold and silver prices even in these uncertain times.
Therefore if the U.S. labor report will be positive and show an increase in employment it could curb the recent rally of gold price. The recent PMI manufacturing report showed a slight improvement and may serve as an indictor to a positive result in the upcoming labor report.
ECB Kept Interest Rate Unchanged at 1.5%
Despite the high expectation that the European Central Bank will lower its basic interest rate, Jean-Claude Trichet, President of ECB, announced the ECB will keep the European interest rate unchanged at 1.5%; Jean-Claude Trichet said he expects the inflation rate to remain above the 2% target of ECB in the months to come.
The chart below shows the changes in ECB interest rate and EURO inflation rate in 2011 (UTD).
This news may have helped push gold and silver prices up along with increase in the EURO/USD.
US Dollar / Gold & Silver Prices – October
The EURO/US Dollar exchange rate increase on Thursday by 0.67% to reach 1.3437; the Australian dollar also followed and appreciated against the US Dollar by 0.90%. Today, the U.S. labor report might affect not only forex traders, but also commodities traders especially if there will be unexpected news (good or bad). If major risky currencies will continue to appreciate against the US Dollar, they may help push up gold and silver prices.
S&P500 / Gold Price – October
The S&P500 index inclined again on Thursday by 1.83%; during October the S&P500 index increased by 2.97%. If the stock market will continue to rally today then it may curb the gains in gold and silver prices.
U.S. Treasuries / Gold Price – October
The US 10-year Treasury yield sharply inclined on Thursday by 0.09 percent points to 2.01%; during October the 10 year treasury yield rose by 0.09 percent point. This shift coincides with the gains in the U.S. stock markets over the new optimism in the markets over the European debt crisis. If the U.S. long term securities’ yields will continue rising as they did in recent days, it might suggest gold price will eventually decline.
Current Gold and Silver Prices
The precious metals prices are currently traded with mixed trend in the European markets:
Current gold price short term future (November 2011 delivery) is traded at $1,654.10 per t oz. a $0.9 or 0.05% increase as of 09:52*.
Current silver price short term future (November 2011 delivery) is at $31.725 per t oz – a $0.280 or 0.87% decline as of 09:52*.
The current ratio of gold to silver prices is at 52.13.
Gold and Silver Prices Outlook:
Gold and silver prices sharply inclined yesterday, and they start to show a modest upward trend during October. The recent ECB rate decision may have helped with yesterday’s gains in gold and silver pries, but the main news item will be the U.S. labor report that could stir up the financial markets especially if the U.S. labor report will be highly unexpected. The light optimism in the markets over the recent actions taken by EU policymakers to contain the debt crisis in Europe, and the speculation around the Fed’s future steps will probably continue the positive sentiment in the financial markets. This sentiment might keep the rally of U.S. and European stock markets in the very short term and thus may curb the rally of gold and silver prices. But as long as the uncertainty in the markets remains high, gold and silver will thrive; so that it’s likely that gold and silver prices will continue their moderate rally during October.
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Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
12:00 – Canada Unemployment Rate and Employment Report
13.30 – U.S. Unemployment Rate & Non-farm Employment Report
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Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.