Gold and silver prices continue to zigzag as they have bounced back yesterday from Monday’s falls. During September gold price changed direction eleven times (on a daily scale) out of the past 13 business days. The FOMC meeting started yesterday and will conclude today. The speculation around what will be next step of the Fed will end today. How will the Fed’s decision reading implementing a stimulus plan affect the financial markets and gold and silver prices?
Today, the Canadian Core CPI will also be published and the U.S. existing home sales report for August.
Here is a market outlook of precious metals prices for today, September 21st:
Gold and Silver Prices –September
Gold and silver prices changed direction again and increased yesterday: Gold price rose on Tuesday by 1.70% to $1,809; silver price also inclined by 1.79% to $39.87. During September, gold price declined by 1.2% and silver price fell by 4.6%. The chart below presents the price changes of gold and silver throughout September (normalized gold and silver prices (August 31st 2011=100)).
The ratio between gold and silver prices reached on Tuesday, September 20th 45.38. During September, gold price has slightly outperformed silver price as the ratio rose by 3.5%.
FOMC Meeting – will there be a stimulus plan?
Following last month’s meeting of the Federal Open Market Committee in which the FOMC announced the Fed will keep its interest rates low at least until mid-2013, the September meeting, which will be concluded today, is expected to announce whether the FOMC will issue a new stimulus plan.
The minutes of the last FOMC meeting showed that there were disagreements among members about a stimulus plan:
“Some participants noted that additional asset purchases could be used to provide more accommodation by lowering longer-term interest rates. Others suggested that increasing the average maturity of the System’s portfolio–perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities–could have a similar effect on longer-term interest rates. Such an approach would not boost the size of the Federal Reserve’s balance sheet and the quantity of reserve balances.”
The FOMC could decide to issue a new stimulus plan without increasing the balance sheet of the Fed by purchasing long term US securities in exchange for short term securities. This action is likely to further lower the long term securities’ yield.
There is also the possibility of issuing another quantitative easing plan that will expand the balance sheet of the Fed. I have analyzed the cons and pros of another QE program herein.
And of course the Fed could just procrastinate and state it will reexamine the economic progress of the US in the months to come and make a decision in the next FOMC meeting.
If the FOMC will decide today to issue a stimulus plan it could have an effect on bullion market and may further raise the demand for gold and silver.
Further Items on Today’s Agenda:
Canadian Core CPI: In the recent Canadian statistics report regarding July 2011, the CPI rose by 2.7% in 12 month up to July – this is a lower rate than in June, in which there was a 3.1% growth rate in 12 months; this news could affect traders of CAD and consequently also gold and silver prices.
U.S. existing home sales: Following yesterday’s report on the housing starts, today the report about US existing home sales will provide another indictor of the housing market. In the recent report reading July there was a drop in number of homes sold (see here the recent review);
Decline in US Housing Starts in August
During August 2011 there was an increase in building permits, but there was a drop in housing starts. Privately owned housing starts fell in August 2011 by 5.0%; the annual rate in August is still 5.8% below the rate in August 2010.
This news provide a mixed signal about he development of the US housing market; however the news of the decrease in housing starts might prove to have a strong effect on traders’ perspective than the building permits’ growth. It was already studied that there is a estimated lagged by one day negative correlation between housing starts and gold price; i.e. as housing starts decreases, gold price tend to increase the following day.
S&P downgraded Italy’s credit rating from +A to A
Standard and Poor’s announced it had downgraded Italy’s credit rating from +A to A on foreign and local long term debt with a negative outlook. This news didn’t help much the Euro and brings additional pressure on the financial markets in regards to the economic stability of Euro Zone.
IMF lowers global economic outlook
The IMF issued yesterday its World Economic Outlook Report. In the report the IMF compared 187 nations. The economic output of the world was revised down from 5.1% growth in 2011 and 2012 to 4%. The IMF also slashed the economic growth of United States and Europe. This news might have affected traders yesterday in the commodities, stocks and forex markets.
US Dollar / Gold & Silver Prices – September Update
The Euro to USD changed direction several times throughout the day but eventually closed Tuesday’s trading day with a 0.12% increase to 1.3702; during September the EURO/USD rate fell by 4.6%. If the USD will continue to appreciate against major currencies including Euro, AUD and CAD, as it did throughout most of September, it may also pressure gold and silver prices to trade down.
Current Gold and Silver prices
The precious metals prices are currently traded slightly up in the European markets:
Current gold price short term future (October 2011 delivery) is traded at $1,815.0 per t oz. a $5.9 or 0.33% increase as of 08:54*.
Current silver price short term future is at $40.215 per t oz – a $0.078 or 0.19% incline as of 08:55*.
The current ratio of gold to silver prices is at 45.09.
Gold and silver prices Outlook:
Gold and silver prices changed direction and inclined yesterday, and currently they are traded slightly up. The FOMC meeting today could affect the trade of not only the stock and forex markets, but also commodities markets. If the FOMC will come up with a new stimulus plan it may provide additional back-wind to bullion prices and increase the demand for gold and silver. On the other hand, if the US dollar will further appreciate against major currencies such as CAD, AUD and Euro, throughout the day, it could pressure down gold and silver prices. For the remainder of the month I still speculate that gold and silver prices will slowly recover from their recent drop.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13:00 – Canadian Core CPI
15:00 – U.S. existing home sales
15:30 – EIA report about Crude oil inventories
19:15 – FOMC meeting
09:00 – Euro Area Manufacturing PMI
13:30 – Canada Core retails sales
13:30 –U.S. Unemployment Claims
15:30 – EIA Natural gas storage report
For further reading: