The week may have started with gold and silver prices rising, but currently they have changed direction and are being traded down. Is this just a correction or a beginning of change in pace?
Today, the US new homes sales report will be published, the French and German flash manufacturing PMI and the core retail sales of Canada.
Let’s examine the precious metals market for today, August 23rd:
Gold and silver prices –August
Gold and silver prices continue to break new highs: Gold price rose on Monday by 2.14% to $1,891; silver price also inclined by 2.11% to $43.37. During August, gold price increased by 16%, and silver price inclined by 8.1%. The chart below shows the normalized gold and silver prices (July 29th 2011=100).
The ratio between gold and silver prices continues to remain around the 44-45 mark; on Monday, August 22nd it reached 43.63. During August gold price has outperformed silver price as the ratio inclined by 7.3%, but in the past several days this situation is slowly shifting.
U.S. new home sales – July 2011
This report shows the changes in the real estate market in July 2011 and the new home sales in the U.S.; in the previous report (June 2011), the sales of new homes fell by 1% compared with the number of new homes sold in May 2011. If this report will further show a fall in new home sales, it may indicate the further slowing down of US economy.
US Dollar & US Treasuries / Gold & silver prices – August update
The Euro to US dollar exchange rate continues to seek direction and declined yesterday by 0.27%. The US dollar also appreciated against other major currencies including Australian dollar and Japanese yen. Bloomberg reports that currently US dollar is traded down due to the recent China manufacturing survey that showed a slowdown in China’s manufacturing activity.
As seen below, the major currencies are more correlated with the daily percent changes in silver price than with gold price. Among the major exchange rates that were linearly correlated with silver price during August (UTD) are: USD/BRL, AUD/USD, USD/YEN, USD/CAD and Euro/USD. Gold price was mostly correlated with USD/YEN. If the forex markets will continue with its high volatility, it could push up gold and silver prices.
The US 10-year Treasury yields continue to fall as they have reached 2.06% – nearly a 0.84 percent point fall from last month and 0.19 percent point fall from last week. As the demand for U.S. Treasury bills rises, it indicates that traders seeking safe havens including gold and silver.
S&P500 / Gold & silver prices – August update
The S&P500 index slightly inclined on Monday by 0.03%. During August, S&P500 index fell by 13.04%. The linear correlation of gold and silver prices with S&P500 index (daily percent changes) was -0.487 (for gold) and -0.286 (for silver). This means, as the S&P500 index rises, gold and silver prices fall. If the S&P500 index will rebound from the falls it endured during last week, it may curb the rally of gold and silver prices.
Current Gold and Silver prices
The precious metals prices are currently traded down in the European markets:
Current gold price short term future (September 2011 delivery) is traded at $1,880.0 per t oz. a $11.9 or 0.63% decrease as of 09:02*.
Current silver price short term future is at $43.185 per t oz – a $0.18 or 0.42% decline as of 09:01*.
The current ratio of gold to silver prices is at 43.53.
Gold and silver prices Outlook:
Gold and silver prices enjoyed an upward trend in recent weeks; if gold and silver prices will trade down today, it will likely to be a correction to the sharp gains they have had. Currently there are no major news items that could support a drastic change in direction. If the stock markets will bounce back from their falls, and the US dollar with further appreciate these factors may curb some of the gains in gold and silver prices.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
08:00– French and German flash manufacturing PMI (August 2011)
10:00 – Euro and German ZEW economic sentiment
13:30 – Core retails sales Canada (May 2011)
15:00 – U.S. new home sales
13:30 – US Department of Commerce – Report on core Durable Goods
15:30 – EIA report about Crude oil inventories
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.