Gold price bounced back from the falls it had in the past couple of business days. Gold price is still 7.8% above the price from the end of July. Gold and silver prices are currently traded up. Today, the U.S. Building permits and Housing starts reports will be published and the European Union GDP second quarter report.
Let’s examine the precious metals market for today, August 16th:
Gold and silver prices –August
Gold price inclined on Monday by 0.88% to $1,758; silver price also inclined by 0.57% to $39.34. During August, gold price increased by 7.8%, but silver price fell by 1.9%.
The chart below shows the normalized gold and silver prices (July 29th 2011=100). Gold price bounced back from the decline it had 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 didn’t change much in recent days as it reached on Monday, August 15th 44.69. During August gold price has outperformed silver price as the ratio inclined by 9.9%.
The correlation between silver and gold prices has also declined during August and is currently at its lowest rate in 2011.
US Housing Market – July update
Today the building permits rate and housing starts report will be published that will give some indication of the economic progress of the US housing market. In regards to US housing starts, historically it was correlated with gold price – as housing starts rise gold price usually declined the following day (even when controlling to the US dollar effect); in the last report the adjusted annual rate reached 629,000 in June 2011, which is 14.6% above the May rate of 549,000.
Following the very disappointing report showing that Germany’s economy grew by only 0.1% in the second quarter 2011, the Euro Area GDP showed similar disappointing report as it grew by only 0.2%. This news is likely to raise the questions of the recent monetary policy of the ECB in particular the raises of the interest rates during 2011. This news is also likely to further push funds towards gold and silver as the economic progress of Europe had reached a halt in the second quarter.
S&P500 / Gold & silver prices – August update
The S&P500 index rose for the third straight day, yesterday by 2.18%. This rally might have 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 during August the linear correlation of gold prices and S&P500 index (daily percent changes) was 0.499 (but due to very few samples, it wasn’t significant). This means, as the S&P500 index decreased, gold prices inclined. If the S&P500 index will continue to rise, it may curb some of the gains in gold prices.
US TIC long term purchases – June report
According to the report, the U.S. Treasuries longer-term notes by other countries declined by $16.7 billion during June compared with May’s acquisitions. Foreign holdings of all dollar-denominated short-term U.S. securities and other custody have also decreased $14.7 billion.
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. This means that despite the decrease in holdings during June, it’s likely that future reports will present an increase in the net foreign purchases.
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate rose again for the third consecutive day; yesterday it sharply rose by 1.38%; the US dollar depreciated against other currencies including the Australian dollar and Canadian dollar. There is still high volatility in the forex market; if the forex markets will continue to demonstrate high volatility, it could benefit gold and silver prices to increase.
Crude oil prices and gold & silver prices – August
In the past, crude oil prices and gold and silver prices used to have a strong positive correlation. But in the past couple of months, the linear correlation between these commodities was very low; this is in line with the sharp rally of gold and silver prices during July and August, while crude oil prices remained nearly unchanged during July and fell sharply at the beginning of August.
Current Gold and Silver prices
The precious metals prices are currently traded up in the Asian market:
The current gold price short term future (September 2011 delivery) is traded at $1,770.3 per t oz. a $12.3 or 0.70% increase as of 07:36*.
Current silver price, short term futures is at $39.650 per t oz – a $0.313 or 0.80%, incline as of 07:21*.
The current ratio of gold to silver prices is at 44.64.
Gold and silver prices Outlook:
Gold and silver prices seem to have resumed their ascend that reached a halt in the past few days, mainly due to the margin hike by CME on trading gold at the end of last week. The US housing market might continue to show an improvement if the US building permits and US housing starts will rise in the upcoming reports; this news might curb some of the concerns over the economic slowdown in the US and the rally of gold and silver prices. The major stock markets have also shown signs of recovery to curb the increases in gold and silver prices. Nevertheless, I still think that gold and silver prices will continue their rally, but with much less volatility than in the beginning of August.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
10:00– Main Europe’s economy’s GDP 2Q2011 report
13.30 – U.S. Building Permits
13.30 – U.S. Housing Starts
10:00 – Euro Area CPI and core monthly inflation (June)
13.30 – U.S. producer price index news
15:30 – EIA report about Crude oil inventories
00.50 – Report of Japanese Trade balance
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.