Gold and silver prices rose again yesterday and thus gold price has completed four consecutive days of gains and silver prices five consecutive business days. The sharp falls in the stock market around the world mainly in the US provided the backwind for the ongoing rally of gold and silver prices this week. The US existing home sales report about July showed a further drop in sales compared with June’s sales rate. This news might have triggered the sharp falls in the stock market as the markets continue to present concerns over a double dip recession in the US.
Gold and silver prices are currently traded up. Today, the Canadian core consumer price index will be published.
Let’s examine the precious metals market for today, August 19th:
Gold and silver prices –August
Gold and silver prices continue to break new highs: Gold price rose on Thursday by 1.57% to $1,822; silver price also inclined by 0.84% to $40.72.
During August, gold price increased by 11.7%, and silver price slightly inclined by 1.5%.
The chart below shows the normalized gold and silver prices (July 29th 2011=100). Gold and silver prices are currently on an upward trend.
The ratio between gold and silver prices continues to remain around the 44-45 mark; on Thursday, August 18th it reached 44.75. During August gold price has outperformed silver price as the ratio inclined by 10%.
S&P500 / Gold & silver prices – August update
The S&P500 index sharply fell yesterday by 4.46% – the last time there was such a sharp decline was back in August 10th. During August the linear correlation of gold and silver prices with S&P500 index (daily percent changes) was -0.516 (for gold) and -0.301 (for silver). This means, as the S&P500 index decreases, gold and silver prices inclines. If the S&P500 index will continue to fall, it may further push gold and silver prices up. Notice in the chart below the sharp shifts in the relation between S&P500 index and gold price in the past months. This indicates the relation between these indexes is more complicated than just a linear one.
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate changed direction again and declined yesterday by 0.64%, following the disagreement in the recent German-French summit, and the rise in the US 30-year Treasury yields that have extended their biggest weekly decrease since 2008. The US dollar strongly appreciated against other currencies including the Australian dollar and Canadian dollar. The high volatility in the forex market made a comeback; if the forex markets will continue with this high volatility, it could push up gold and silver prices.
U.S. existing home sales
Following the decline in US housing starts and building permits during July 2011, the U.S. existing home sales also showed a slow down. In the recent report, the seasonally adjusted annual rate fell by 3.5% to 4.67 million home sales. This news presents a further slowdown in economic activity in particular in the housing market. This news might have also rekindled the falls in the stock markets over concerns of a double dip recession.
U.S. unemployment claims
For the week ending on August 6th, the number of insured unemployment fell by 4,500 to 3.716 million (4-week moving average). This decrease may indicate more people found jobs or gave up looking, but in any case might serve to decrease the August unemployment rate (see here my recent review on the US Labor market).
U.S. CPI – July 2011
The US inflation rose by 0.5% and the consumer price index without food and energy also rose by 0.2% during July. This means there are inflation pressures in the US, despite the decline in other economic indicators that show a slowdown.
Current Gold and Silver prices
The precious metals prices are currently traded up in the European markets:
Current gold price short term future (September 2011 delivery) is traded at $1,855.4 per t oz. a $33.4 or 1.83% increase as of 08:24*.
Current silver price short term future is at $41.205 per t oz – a $0.489 or 1.2% incline as of 08:25*.
The current ratio of gold to silver prices is at 45.02.
Gold and silver prices Outlook:
Gold and silver prices continue their ascend at a higher pace than in the past couple of days as the stock markets indexes fell very sharply and traders pull their funds towards gold, silver and US treasury bonds. The US existing home sales might have stimulated the markets to react so sudden and trade down. Usually, a day of sharp falls is followed by a sharp correction; if this will be the case in the stock markets it might curb the rises in gold and silver prices, but less likely to shift their direction to falls. 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 (all times GMT):
13.00 – Canadian Core CPI
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.