Gold and silver prices sharply declined yesterday and thus erased all that they have gained in the past week and a half; CME raise margins again on gold trading by 27% – this news probably contributed to the falls in gold prices; S&P500 index rose again for the third straight day, but is currently traded down; US Treasury bill yields sharply inclined as well. Currently, gold and silver prices are traded up. Today, the US unemployment claims report will be published. But all eyes are set towards tomorrow and Bernanke’s speech in Jackson Hole.
Let’s examine the precious metals market for today, August 25th:
Gold and silver prices –August
Gold and silver prices changed direction and fell yesterday: Gold price sharply fell on Wednesday by 5.59% to $1,757; silver price also plummeted by 7.39% to $39.20. During August, gold price increased by 7.7%, while silver price declined by 2.3%. The chart below shows the normalized gold and silver prices (July 29th 2011=100).
The chart shows how the past couple of days’ falls have eliminated all the gains of gold and silver prices from the past week and a half.
CME raised again margins on gold trading by 27%
CME (Chicago Mercantile Exchange), the world’s largest future market, decided to raise the maintenance margins requirements from $5,500 to $7,000 for trading gold on Wednesday, August 24th by 27% effective after the close of today’s business day on August 25th. The initial-margin requirement, or the minimum amount of cash that speculators must keep on deposit, will also incline to $9,450 per 100-ounce contract from $7,425. This is the second time in August that CME raised margins during August: last time, CME raised gold futures trading margins requirements by 22% to $5,500 per contract on Thursday August 11th.
This news makes holding gold much less attractive and thus wards off many speculators from the precious metal market. This decision is likely to be one of the prime reasons for the recent sudden shift in gold prices to decline so sharply yesterday.
If gold prices will resume their steep climb up, don’t be surprise if CME will decide to raise margins again in an attempt to stabilize the gold market.
The ratio between gold and silver prices continues to remain around the 44-45 mark, but changed direction from the recent moderate downward fall it had in recent days; on Wednesday, August 24th it reached 44.83. During August, gold price has outperformed silver price as the ratio inclined by 10.2%.
Despite the sharp changes in gold and silver prices, their correlation of daily percent changes is still strong as seen in the chart below. This also shows that as gold price declines silver price will soon follow.
U.S. durable goods report showed improvement in July 2011
According to report on US new durable goods manufactures’ shipments and orders for July 2011, there was an increase in orders of durable goods and capital goods compared with June’s. This news might have also brought back some optimism in the progress of US economy.
S&P500 / Gold & silver prices – August update
The S&P500 index inclined again on Wednesday by 1.31%, and thus gained back some of the losses from last week. During August, S&P500 index fell by 8.87%. The linear correlation of gold and silver prices with S&P500 index (daily percent changes) was -0.478 (for gold) and -0.357* (for silver) as of August 24th. This means, as the S&P500 index rises, gold and silver prices fall. If the S&P500 index will continue to rise, it may further push down gold and silver prices. The chart below of the normalized prices of gold, silver and S&P500 index (100= July 29th) show the opposite directions these indexes.
US Treasuries / Gold & silver prices – August update
The US 10-year Treasury yields are still very low, but continue to rise very sharply in the past couple of days; they have reached yesterday 2.29% – a climb of 0.22 percent points from the year low of 2.07% back on August 19th. During August they have fell by 0.53 percent points. If the growth in demand for U.S. Treasury bills will continue to drop, it may further indicate that traders are slowing down from their panic towards seeking gold and silver.
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate continues to zigzag and declined yesterday by 0.19%. During August, the Euro to US dollar exchange rate changed directions 15 times (on a daily basis). The US dollar also appreciated against other major currencies including Australian dollar and Yen. This news doesn’t seem to have much of an effect on gold and silver prices.
Current Gold and Silver prices
The precious metals prices are currently traded up in the U.S. markets:
Current gold price short term future (September 2011 delivery) is traded at $1,772.4 per t oz. a $15.1 or 0.86% increase as of 21:10*.
Current silver price short term future is at $41.115 per t oz – a $1.914 or 4.88% incline as of 21:05*.
The current ratio of gold to silver prices is at 43.10.
Gold and silver prices Outlook:
Gold and silver prices nearly erased in the past couple of days all the gains they had in August: Gold price fell to its level back in August 15th and silver price decreased below its initial price level from the beginning of August. The CME margin hike probably was one of major contributors to push out speculators from holding gold. The speculation around the economic progress of the US and how will it affect the lecture of Bernanke tomorrow in Jackson Hole is high and also may contribute to the changes in gold and silver prices. The major commodities prices, forex and stock markets indexes are shifting direction as the financial markets are extremely volatile. With such extreme volatility adding a quantitative easing plan might not bring stability to the financial markets. The sharp fall in gold and silver prices might indicate that the market changed its bet that Bernanke won’t put the QE3 program on the table tomorrow, but the market has proven to be wrong in the past. Coming tomorrow, it will be much easier to see the direction of gold and silver prices, if the Federal Reserve chairman will provide a solid answer to his intentions about QE3. In the mean time, gold price might lose ground again on the CME margin hike before resuming its slow ascent.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13:30 – Department of Labor report – U.S. unemployment claims
15:30 – EIA report about Natural gas storage
4.05 – Reserve Bank of Australia – Governor Stevens talks
09.00 – Monetary developments in the euro area
09:30– US GDP 2Q 2011report
15:00 – Ben Bernanke, Chairman of Fed, speaks
For further reading:
- 5 reasons for QE3 and 3 against – opinion
- Gold and silver prices outlook for August 2011
- Weekly outlook for August 22-26
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.