Gold and silver prices acted very unstable during last week as they sharply fell on Wednesday following the recent CME margin hike on gold trading, but soon after they have rallied. What is next for gold and silver prices this week? Currently, gold and silver prices are traded with moderate changes. Today, the current president of ECB – Trichet will give a speech; the U.S. pending home sales will be published.
Let’s examine the precious metals market for today, August 29th:
Gold and silver prices –August
Gold and silver prices finished the week on a rise: Gold price rose on Friday by 1.93% to $1,797; silver price also inclined by 0.51% to $41.00. During August, gold price increased by 10.2%, and silver price by 2.2%. The chart below shows the development of the normalized gold and silver prices (July 29th 2011=100) during August.
The ratio between gold and silver prices continues to remain around the 43-45, as it did in the past couple of weeks; on Friday, August 26th it reached 43.84. During August, gold price has outperformed silver price as the ratio inclined by 7.8%.
On Today’s Agenda
Trichet speaks: will give a speech regarding the current debt crisis in Europe; perhaps he will hint about his intentions in regards to the ECB interest rates;
US pending Home sales: This news could serve as a good indicator of the progress of the US housing market and the economic development of the US. The recent new home sales report from last week showed a moderate drop in sales during July, so the expectations on this report aren’t that high. Any further news related to a slowdown in the US economy might push more traders towards gold and silver.
Ben’s speech in Jackson Hole – no QE3 for now
During his speech in Jackson Hole, Bernanke didn’t hint of any stimulus plans in the near future, but also didn’t close the door on it as he said:
“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.”
If the Fed will eventually choose to use one of its monetary stimulus tools it may pull gold and silver prices up in the short run. The problem is that there were many who criticized the Fed’s expanding monetary policy (QE1 and QE2), and its effectiveness.
S&P500 / Gold & silver prices – August update
The S&P500 index changed direction and again and finished the week with moderate rises – as it inclined on Friday by 1.51%, and thus completed a rise of 4.71% during last week, but during August, S&P500 index fell by 8.94%. During August, the S&P500 index had a negative correlation with the daily percent changes of gold and silver prices; so that if the S&P500 index will incline today, it may curb some of the gains in gold and silver prices.
US Treasuries / Gold & silver prices – August update
The US 10-year Treasury yields slipped again the past couple of business days to 2.19%, but gained back nearly 0.09 percent points during last week. During August they have fell by 0.63 percent points. If the growth in demand for U.S. Treasury bills will continue and the yields will further fall, it may further indicate that traders are leaning towards safe havens including gold and silver.
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate inclined on Friday by 0.83%, following the recent speech given by Bernanke in Jackson Hole, in which he didn’t hint of any stimulus plans for now. During August, the Euro to US dollar exchange rate changed directions 16 times (on a daily basis) – another clear indicator of the lack of direction in the Forex market. The US dollar also depreciated against other major currencies including Australian dollar and Canadian dollar. Due to the high volatility in US dollar during August, it’s hard to see the effect of the changes in US dollar (currently) on gold and silver prices.
Current Gold and Silver prices
The precious metals prices are currently traded up in the Asian markets:
Current gold price short term future (September 2011 delivery) is traded at $1,827.0 per t oz. a $11.2 or 1.65% increase as of 05:49*.
Current silver price short term future is at $41.425 per t oz – a $0.424 or 1.03% incline as of 05:48*.
The current ratio of gold to silver prices is at 44.10.
Gold and silver prices Outlook:
Gold and silver prices bounced back from their falls in the past couple of business days. The effect of the CME margin hike on gold trading seems to have subsided for now as gold and silver prices are resuming their rally. The uncertainly in the financial markets is still high so that it’s likely to contribute the stability of gold and silver prices. Despite Bernanke’s speech, in which he didn’t commit to another stimulus plan, I still speculate that gold and silver prices will continue to rally at a slower pace than during the second week of August.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13:30 – ECB conference Trichet speaks
15:00 – U.S. pending home sales
15.00 – US consumer confidence
17:30 – FOMC meeting minutes
For further reading:
- The fall and rise of gold & silver | weekly recap 22-26 August
- Gold and silver prices outlook for August 2011
- Weekly Outlook for August 29- 2 September
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.