The FOMC decision to purchase $400 billion LT securities is likely to continue affecting in small doses the financial markets throughout June 2012 when the program will end. But currently the financial markets don’t seem to be pleased with this plan as the US stock markets sharply fell yesterday. Gold and silver prices didn’t seem to react to this news yesterday, but currently they are traded sharply down.
Today, the Euro Area Manufacturing PMI will be published, last week’s U.S. Unemployment Claims report and the Canada Core retails sales report. Here is a market outlook of precious metals prices for today, September 22nd:
Gold and Silver Prices –September
Gold and silver prices changed direction again and increased yesterday: Gold price rose on Wednesday by 0.06% to $1,808; silver price on the other hand inclined by 1.52% to $40.47. During September, gold price declined by 1.3% and silver price fell by 3.1%. 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 Wednesday, September 21st 44.68. During September, gold price has slightly outperformed silver price as the ratio rose by 1.9%.
FOMC to Purchase $400 billion LT Securities – No QE3
The Federal Open Market Committee decided to purchase $400 billionworth of Long Term Securities in exchange of Short Term Securities to be completed the end of June 2012. This isn’t a QE3 because there is no expansion of the Fed’s balance. The committee took this decision in a 7-3 vote for it. This action should further decrease the long term securities’ yields and help the US government rollover its debt. The financial markets didn’t react well to this news as the markets may have considered a more substantial involvement by the Fed and not a relatively small and modest purchase plan.
This news isn’t something earth-shattering, but isn’t a quantitative easing plan that will weaken the US dollar. Therefore, this news isn’t likely to strengthen, via the USD, gold and silver.
On Today’s Agenda:
Euro Area Manufacturing PMI: In the last report regarding August 2011, the Euro Zone ManufacturingPMI dropped below the 50 point mark. If this report will continue to be negative, it may further pressure the Euro/USD exchange rate to decline in consequently also gold and silver prices;
U.S. Unemployment Claims: For the week ending on September 10th, initial claims rose by 11,000 to 428,000 claims; for the week ending on September 3rd, the number of insured unemployment was 3.726 million, a decrease of 12,000 compared with the previous week. This report could affect forex traders and thus also gold and silver traders.
Rise in US Existing Home Sales in August
According to the recent report of the Realtors’ organization the U.S. existing home sales rate rose in August 2011 by 7.7% to a seasonally adjusted annual rate of 5.03 million home sales.
This news provide a signal that the US housing market is slightly improving, however its far from stating that the housing market is on a road to recover. The FOMC decision is aimed to help the housing market by reducing mortgage rates, but as long as there are a employment problem people are less likely to take credit to purchase homes.
US Dollar / Gold & Silver Prices – September Update
The Euro to USD conversion rate along with other exchange rates such as AUD/USD sharply declined yesterday; the EURO/USD declined by 0.94% to 1.3573; during September the EURO/USD rate fell by 5.5%. The recent news of the Fed’s decision might strengthen the USD. If the USD will continue to appreciate against major currencies such as the Euro, AUD and CAD, as it did throughout most of September, it further pressure gold and silver prices to trade down.
S&P500 / Gold & Silver Prices – September Update
The S&P500 index sharply fell yesterday by 2.94%; during September the S&P500 index declined by 4.28%. The negative correlation between the S&P500 index and gold and silver prices (as of September it was -0.486 and -0.186, respectively) suggest that yesterday’s decline in gold price wasn’t related directly to the decrease in the US stock markets. If the stock markets will continue to drop, it might also affect gold and silver to trade up or at least curb their falls.
Current Gold and Silver Prices
The precious metals prices are currently traded sharply down in the European markets:
Current gold price short term future (October 2011 delivery) is traded at $1,751.1 per t oz. a $51.0 or 2.82% decrease as of 13:05*.
Current silver price short term future is at $37.880 per t oz – a $2.589 or 6.40% decline as of 13:07*.
The current ratio of gold to silver prices is at 46.22.
Gold and Silver Prices Outlook:
Gold and silver prices continue to change directions and didn’t do much yesterday, but they are currently traded sharply down. The FOMC plan is likely to have little effect on the financial markets in the long run as it might further reduce the yields on long term securities, but during the next couple of days it may further strengthen the US dollar, a sequence that might pressure gold and silver prices to trade down. If the Euro Area Manufacturing PMI will show a slowdown it might further weaken the Euro that may also pressure gold and silver prices down.
For the remainder of the month I speculate that gold and silver prices will slowly recover from their current decline, but will probably finish the month below their initial price levels from the beginning of the month.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
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
19:00 – ECB conference Trichet speaks
World Bank and IMF Meeting
For further reading:
- Gold and silver prices outlook for September 2011
- Weekly Outlook for September 19-23
- Gold & Silver Prices | Weekly Recap 12-16 September
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.