Gold and silver prices rallied yesterday and thus erased the moderate price falls they have recorded on Monday. The US consumer confidence report seems to have had little effect on bullion market. On the other hand, the FOMC minutes revealed some insight and rekindled the speculation around a new stimulus plan by the Fed. Yesterday, the US Treasury bill yields fell, but the S&P500 index increased for the third straight business day. Currently, gold and silver prices are traded up. Today, there are many reports to be published including: the Euro Area rate of unemployment, annual inflation, Canadian GDP, ADP estimate of US change in non-farm employment and China’s Manufacturing PMI.
Let’s examine the precious metals market for today, August 31st:
Gold and silver prices –August
Gold and silver prices finished yesterday with sharp rises: Gold price rose on Tuesday by 2.13% to $1,829; silver price also inclined by 2.13% to $41.46. During August, gold price increased by 12.2%, and silver price by 3.4%. The chart below (normalized gold and silver prices (July 29th 2011=100)) shows the rally of these precious metals’ prices in the past few days, after they had declined a week earlier.
The ratio between gold and silver prices continues to dwindle around 43-45; on Tuesday, August 30th the ratio remained unchanged at 44.13. During August, gold price has outperformed silver price as the ratio inclined by 8.5%.
Following the minutes of the last meeting of the FOMC on August 9th, in which it was decided to keep rates at low level at least until mid 2013, the minutes of the last meeting reveals the concerns of the board of the committee. They have voiced their concerns of the economic slowdown in the second half of 2011:
“The information on economic activity received since the June FOMC meeting was weaker than the staff had anticipated, and the projection for real GDP growth in the second half of 2011 and in 2012 was marked down notably… Meeting participants generally noted that overall labor market conditions had deteriorated in recent months…Most meeting participants indicated that the weakness in consumer spending in recent months was unexpected. ..The weakness in household and business spending was accompanied by fiscal consolidation at the state and local level… Participants generally saw the degree of uncertainty surrounding the outlook for economic growth as having risen appreciably.
A few members have suggested asset purchases in order to lower long term interest rates; other members suggested just lowering the long term rates without raising the balance sheet of the Federal Reserve:
“Some participants noted that additional asset purchases could be used to provide more accommodation by lowering longer-term interest rates. Others suggested that increasing the average maturity of the System’s portfolio–perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities–could have a similar effect on longer-term interest rates. Such an approach would not boost the size of the Federal Reserve’s balance sheet and the quantity of reserve balances.”
Other members stated that implementing an additional stimulus plan will just be add an inflation risk and won’t do much good:
“…these participants thought that providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or employment.”
This news only added more speculation to the market and now all will look toward the next meeting of the FOMC in September 21-22 to see if there will be eventually any additional stimulus plan of any sort.
Consumer Confidence report
Yesterday, the US consumer confidence report came out and showed a sharp drop in the consumer confidence index. This drop isn’t too surprising considering the sharp falls in major stock markets during the first couple of weeks of August. This news, however didn’t affect much traders as the financial markets including the stock markets finished yesterday in the green. This news didn’t seem to affect many gold and silver traders as well. This might suggest that the “panic” in the financial markets during the first couple of weeks in August was a bit an overreaction and has passed.
On Today’s Agenda
Euro Area rate of unemployment: the Euro Area seasonally adjusted unemployment rate reached 9.9% in June 2011; according to current expectations the July unemployment rate will remain at 9.9%;
ADP estimate of U.S. change in non-farm employment: ADP will provide an estimate of the US labor report for August;
S&P500 / Gold & silver prices – August update
The S&P500 index inclined again for the third straight business day by 0.23%, and thus completed a 7.98% rally since August 22nd. During August, S&P500 index fell by 7.93%. Furthermore, during August the S&P500 index had a negative correlation with the daily percent changes of gold and silver prices of -0.432 and -0.355, respectively; so that if the S&P500 index will further incline today, it may curb some of the gains in gold and silver prices. The chart below shows the normalized prices of gold, silver and S&P500 index during August.
US Treasuries / Gold & silver prices – August update
The US 10-year Treasury yields fell yesterday by 0.09 percent points, and during August they have fell by 0.63 percent points. If the demand for U.S. Treasury bills will rise and the yields will further rise, it may further indicate that traders are seeking safe haven investments including gold and silver, and thus gold and silver prices may rise again. The chart below shows the relation between gold price and 10 year U.S. Treasury bills yield during August. It shows as gold price inclined, the 10 Yr yields fell.
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate zigzagged again and slightly declined on Tuesday by 0.48%; during August, the Euro to US dollar exchange rate changed directions 17 times (on a daily basis). The US dollar appreciated against other major currencies including Australian dollar and Canadian dollar. Because of the high volatility in the Forex market, it’s still hard to see the effect of the changes in US dollar 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 $1,837.7 per t oz. a $7.9 or 0.43% increase as of 18:17*.
Current silver price short term future is at $42.060 per t oz – a $0.596 or 1.44% incline as of 18:17*.
The current ratio of gold to silver prices is at 43.69.
Gold and silver prices Outlook:
Gold and silver prices bounced back yesterday, after they had fell in the previous day rallied in the previous few days. The uncertainly in the financial markets is still high and we are nearing the end of the month – as the short term future contracts are about to expire, so gold and silver prices may change direction throughout the day. If the news from Euro and US regarding the reports to be published today will show a slowdown, this may further push traders towards the bullion markets. The movement in the bonds market may also contribute to the changes in the gold and silver prices throughout the day. I still speculate that gold and silver prices will continue to increase 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):
10.00 – Euro Area rate of unemployment
10.00 – Euro Area annual inflation (July)
13.30 – ADP estimate of U.S. change in non-farm employment
13:30 – Canada GDP by industry
15:30 – EIA report about Crude oil inventories
2.00– China Manufacturing PMI
13:30 – Department of Labor report – U.S. unemployment claims
15.00 – U.S. ISM Manufacturing PMI
15:30 – EIA report about Natural gas storage
For further reading:
- The fall and rise of gold & silver | weekly recap 22-26 August
- Weekly Outlook for August 29- 2 September
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.