Gold price resumed its upward trend but at a much slower pace than at the beginning of the month. Silver price almost erased all the falls it had at the first few days of August. Gold and silver prices are currently traded up. Today, the U.S. producer pride index will be published; The Euro AREA CPI and Japanese trade balance.
The European Summit meeting between German and French leaders didn’t resolve the debt crisis in Europe as the leaders couldn’t reach an agreement in issuance of bonds by the common currency region. Despite this disappointing news, it didn’t affect much the Euro, but this news might be among the daily factors to push major commodities prices up, including gold and silver prices.
Let’s examine the precious metals market for today, August 17th:
Gold and silver prices –August
Gold price inclined on Tuesday by 1.54% to $1,785; silver price also inclined by 1.3% to $39.34.
During August, gold price increased by 9.4%, but silver price fell by 0.6%.
The chart below shows the normalized gold and silver prices (July 29th 2011=100). Gold and silver prices resumed their upward trend but at a much slower pace than in the beginning of the month.
The gold to silver ratio: the ratio between gold and silver prices continues to remain around the 44-45 mark; on Tuesday, August 16th it reached 44.80. During August gold price has outperformed silver price as the ratio inclined by 10.1%.
US PPI – July 2011
This report will present the inflation rate from producers stand point. In the previous report regarding June, this index for finished goods declined by 0.4%, after a rise of 0.2% in May; in the last month, the index declined mainly due to the drop in energy prices by 2.8%; this index is estimated to have a lagged negative linear correlation with gold prices; i.e. as the PPI falls, gold prices rises the following day.
Euro Area CPI – July 2011
In June 2011, the annual inflation rate was 2.7%, unchanged compared with May’s for Euro Area; the inflation rate is still above the target inflation of ECB. The expectations in the upcoming CPI report for July 2011 are a slight decline. This news might affect the Euro currency, ECB’s rate decision and consequentially a small effect on major commodities prices including gold and silver prices.
S&P500 / Gold & silver prices – August update
The S&P500 index changed direction and after three business days of consecutive rises, it fell yesterday by 0.97%. This shift in its upward trend coincides with the resumed rally of gold and silver prices. The correlation between bullion prices and S&P500 index isn’t reliable, but as presented below during August the linear correlation of gold prices and S&P500 index (daily percent changes) was 0.498 (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 fall, it may provide some backwind to the upward trend of gold prices.
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate fell yesterday following the disappointing Euro Area GDP growth rate (see below) by 0.25%; the US dollar slightly appreciated against other currencies including the Australian dollar and Canadian dollar. The high volatility in the forex market has slightly subsided, but could erupt again very promptly; if the forex markets will resume its high volatility, it could affect gold and silver prices to increase.
Germany grew by only 0.1% in 2Q2011
Yesterday, it was reported that the Euro Area GDP increased by only 0.2% during the second quarter of 2011; this slow paced growth is mainly because of the disappointing growth rate of 0.1% in the GDP of Germany in the second quarter 2011.
During the first quarter, the Euro Area’s GDP grew by 0.8%; Germany’s GDP inclined by 1.3%.
These figures took by surprise many analysts who expected a much higher growth rate for Germany and consequently to the Euro Area. This news is likely to further push funds towards gold and silver as the economic progress of Europe had reached a halt in the second quarter.
US Housing starts and building permits fell in July
The real estate market in the US also didn’t provide good news as the annual rate of building permits and privately owned housing starts declined during July compared with June’s figures. According to Roache et. al (2008)* there is a lagged by one day negative correlation between Housing starts and gold price; i.e. as the Housing starts annual rate falls, gold price rises the following day; this news will likely to contribute to gold price‘s rally.
Current Gold and Silver prices
The precious metals prices are currently traded slightly up in the US markets:
The current gold price short term future (September 2011 delivery) is traded at $1,787.4 per t oz. a 0.13% increase as of 17:04*.
Current silver price, short term futures is at $39.97per t oz – a 0.31% incline as of 17:03*.
The current ratio of gold to silver prices is at 44.71.
Gold and silver prices Outlook:
Gold and silver prices continue with their rally but at a slightly slower pace than in the beginning of the month. The US housing market didn’t provide good news and might provide some additional fuel to the rally of gold and silver prices. The disappointing Euro Area GDP growth rate is also likely to contribute to their rally. The major stock markets fell yesterday, but its not clear their direction due to the high volatility in the markets; if stock markets indexes will resume their descent, it might also help gold and silver prices to rise. Therefore, 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 – 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
13:30 – Report on US CPI
13:30 – Department of Labor report – U.S. unemployment claims
15:00 – U.S. existing home sales
15:30 – EIA report about Natural gas storage
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.