Gold price changed direction and fell for second straight day to end last week in the red. Gold price is still 6.8% above the price from the end of July. This shift was probably stemmed from the recent margin hike by CME along with the cool down in the financial markets. Gold and silver prices are currently traded with moderate falls. Today, the U.S. TIC long term purchases report will be published.
Let’s examine the precious metals market for today, August 15th:
Gold and silver prices –August
Gold price declined on Friday by 0.51% to $1,742; silver price on the other hand bounced back and inclined by 1.15% to $39.11.
During August, gold price increased by 6.8%, but silver price fell by 2.5%.
The chart below shows the normalized gold and silver prices (July 29th 2011=100). Gold price changed direction and fell in recent days, while silver price continue to demonstrate no clear direction in the past few days.
The gold to silver ratio: the ratio between gold and silver prices fell in recent days as gold price fell by a sharper rate than silver price; the ratio reached on Friday, August 12th 44.55. During August gold price has outperformed silver price as the ratio inclined by 9.5%.
US TIC long term purchases – June
The Treasury International Capital report will be published today and present the main changes in the purchases and sales of US long term treasuries during June 2011.
Following the recent downgrade of US credit rating by S&P, the markets shifted direction and pushed funds to the US treasury bills and gold; it’s likely to see an additional slight increase in the net foreign purchases in the June report.
In the previous May report 2011, the net foreign purchases inclined to $23.6 billion; the increase in purchases was mainly driven by China. In the upcoming report there might continue to be a rise in purchases.
S&P500 / Gold & silver prices – August update
The S&P500 index rose again on Friday for the second straight day by 0.53%. This shift might have also cooled down some of the gains recorded in gold and silver prices. The correlation between bullion prices and S&P500 index isn’t reliable, but the changes in S&P500 index are inline with the changes in gold price in recent months and to some extent even with changes in silver price. During August the linear correlation of gold prices and S&P500 index (daily percent changes) was 0.45 (but due to very few samples, it wasn’t significant). This means, as the S&P500 index sharply fell, gold prices inclined.
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate settled down over the weekend as it slightly rose by 0.05%; the US dollar depreciated against other currencies including the Australian dollar and Japanese Yen. The sudden shifts in the forex market during the beginning of last week demonstrated the high volatility in the financial markets; if the forex markets will resume the high volatility it could benefit gold and silver prices to hike up again.
US Retail sales – slight improvement in July
The U.S. Department of Commerce presented a slight improvement in the U.S. retail and food sales during July 2011. During July, the U.S. retail and food sales reached $390.4 billion, an increase of 0.5% compared with the previous month’s sales. This report shows that the US economy continues to improve and is inline with the recent encouraging labor report.
CME raised Gold margins by 22%
CME (Chicago Mercantile Exchange), the world’s largest future market, decided to raise the margins needed to trade gold by 22% on Thursday August 11th. This means, Investors will need to put $7,425 to open a position on gold and maintain at least $5,500 to keep the position overnight. This decision is likely to be one of the prime reasons for the recent sudden shift in gold prices to decline in recent days.
Current Gold and Silver prices
The precious metals prices are currently traded down in the European market:
The current gold price short term future (September 2011 delivery) is traded at $1,738.7 per t oz. a $3.9 or 0.22% decrease as of 08:04*.
Current silver price, short term futures is at $38.955 per t oz – a $0.159 or 0.41%, decline as of 08:04*.
The current ratio of gold to silver prices is at 44.63.
Gold and silver prices Outlook:
Gold price continues its slow paced descent from the sharp rises it recorded during last week; this is probably due to the effect of the recent margin hike by CME, and the decrease in the anxiety in the financial markets over the weekend. The recent US retail sales report showed some slight improvement that could signal that the US’s economy didn’t reach a full halt. On the other hand, the low growth rate of US GDP in Q2 2011 is likely to keep the uncertainly in the financial markets in regards to the recovery of the US. Therefore, I still think that gold and silver prices will eventually resume their rally, but with much less volatility than in the beginning of August, once the correction to the recent CME margin hike will be completed.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
14:00 – US TIC long term purchases
2.30 – Monetary Policy meeting Australia’s Bank
10:00– Main Europe’s economy’s GDP 2Q2011 report
13.30 – U.S. Building Permits
13.30 – U.S. Housing Starts
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Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.