Gold and silver prices sharply fell in the last couple of days of last week; currently they are traded slightly down. The recent CME announcement to raise margin requirements on gold and silver contracts is likely to be among the reasons for the current drop in precious metals’ prices as hot speculative money is cashing out. The speculation around the European debt crisis mainly of Greece’s is likely to be among the prime news items that may affect trading throughout the week. Today, the U.S. New Home Sales will be published.
Here is a market outlook of precious metals prices for today, September 26th:
Gold and Silver Prices –September
Gold and silver prices sharply fell yesterday: Gold price sharply decreased on Friday by 5.85% to $1,639; silver price also plummeted by 17.71% to $30.10. During September, gold price declined by 10.5% and silver price fell by 27.9%. The chart below shows the recent drop in gold and silver prices in the past couple of business days (normalized gold and silver prices (August 31st 2011=100)).
The ratio between gold and silver prices sharply increased on Friday, September 23rd to 54.48 – the highest ratio in 2011. During September, silver price declined by a much higher rate than gold price as the ratio increased by 24.2%.
CME Raised Margins on Gold and Silver Contracts
The CME (Chicago Mercantile Exchange) announced on Friday it will raise the maintenance margins requirements by 21% from $7,000 to $8,500 for trading gold contracts. For silver, the maintenance margins requirements and the initial-margin requirement inclined by 15% from $16,000 to $18,500.
This is the third time in the past couple of months in which CME raised margins requirements on gold contracts: it raised margins twice in August; the last time was back in August 25th by 27%. On August 24th, gold price shed 5.59% of its value, and silver price declined by 7.39%.
This decision is most likely among the main reasons for the ongoing freefall in gold and silver prices in the past couple of days and may continue to affect traders throughout the day. The new rates will come into affect by the close of business on Monday, September 26th.
On Today’s Agenda:
U.S. New Home Sales: in the recent report (for July 2011), the sales of new homes slightly decreased by 0.7% compared with the number of new homes sold in June 2011; if this drop will continue, it may only further indicate a slowdown in the US housing markets and may affect commodities prices;
US Dollar / Gold & Silver Prices – September Update
The EURO/USD exchange rate along with other exchange rates bounced back on Friday: the Euro to USD inclined by 0.27% to 1.3501; the AUD/USD rose by 0.38%; the USD/CAD slipped by 0.03%. The Federal Reserve’s stimulus plan might have triggered the strengthening of USD during most of last week; the concerns in Europe over a Greek default are also likely to keep the USD strong. If the USD will continue to appreciate against major currencies such as the Euro, AUD and CAD, as it did during most of September, it may further pressure gold and silver prices to trade down.
U.S. Treasuries / Gold Price – September Update
The US 10-year Treasury yields sharply increased by 0.12 percent points to 1.84%; during September they have fallen by 0.39 percent points. The recent announcement of CME to raise margins also referred to long term securities so the recent increase in yields coincided with the margin hikes. There was a negative correlation between the US long term Treasury yields and gold price daily percent changes in recent months (in September the correlation was -0.342), but this pattern has weakened in the past several weeks; on Friday both investments slipped when the CME made its announcement.
S&P500 / Gold Price – September Update
The S&P500 index slightly bounced back on Friday and inclined by 0.61%; during September the S&P500 index declined by 6.77%. The negative correlation between the S&P500 index and gold price (as of September it was -0.254) suggest that the decline in gold price wasn’t related directly to the decrease in the US stock markets. But if the stock markets will continue to decline during the rest of September, it might also affect gold price and curb some of its current falls.
Current Gold and Silver Prices
The precious metals prices are currently traded down in the Eureopanmarkets:
Current gold price short term future (October 2011 delivery) is traded at $1,627.7 per t oz. a $12.1 or 0.74% decrease as of 11:51*.
Current silver price short term future is at $29.175 per t oz – a $0.926 or 3.08% decline as of 11:52*.
The current ratio of gold to silver prices is at 55.79.
Gold and Silver Prices Outlook:
Gold and silver prices precipitately declined in the past couple of business days and are likely to continue dropping throughout the day over the CME announcement to raise margins requirement on gold and silver contracts. The uncertainty in the Euro Area over the debt crisis may also have some affect on traders that will decrease their holding in Euro based securities, which in turn may also affect the Euro/USD to trade down. That being said, by the end of September I still speculate that gold price will slowly recover from its current sharp falls, but will most likely finish the month well below its initial price level from the beginning of September. Silver price, which usually is more unstable than gold price, is likely to remain even further below its initial price level.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
15:00 – U.S. New Home Sales
09:00 – Monetary Developments in the Euro Area
15:00 – US Consumer Confidence
For further reading:
- Gold and silver prices outlook for September 2011
- Weekly Outlook for September 26-30
- Gold & Silver Prices | Weekly Recap 19-23 September
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.