Gold and silver prices outlook for September 2011

Gold price experienced during August one of the biggest rallies in 2011. During August gold price nearly reached the $1,900 mark; silver price also rose mainly in the second half of August, and even passed, at one point, the $43 mark. What were the main factors that contributed to these large gains during August? Much like in July, the sharp rises in gold price, had little to do (at least directly) with the fluctuations in US dollar against major currencies, and more to do with the speculations around the recovery of the US Economy, the ongoing debt crisis in Europe and the sharp falls in the US Stock markets. As the uncertainty in the financial markets rose during the month, more traders pulled their funds from the stock market and invested in gold, silver and US Treasury bills.  So what is next for gold and silver prices in September 2011? Let’s examine the precious metals market for August and provide an outlook for gold and silver prices for September 2011.

Gold and silver prices August 2011

During August, silver price started with sharp changes that by the second week of August shifted towards a downward trend; on the other hand, gold price started with moderate changes that soon became a steep upward trend. As a result there was a rising gap between gold price and silver price. Only from the second half of August, gold and silver prices started to in sync and move and similar directions. Gold and silver prices recorded big gains up to August 22nd when the CME raised the margins on gold trading (see below). Following a week long correction in which gold and silver prices sharply fell, they have finally changed direction again during the last week of August and erased some of those falls.

Gold price ended August with a 12.3% increase and silver price added 4.1% to its value.

The table below divides the month into two parts with the breaking point at August 10th; during the first part of August, silver price dropped by 1.9%, while gold price rose by 9.4%; during the second part of August, silver price sharply rose by 6.2%, and gold price  by 2.7%.

Gold price outlook and Silver prices FORECAST  us dollar euro percent change August September 2011

During the first part of August, the US dollar appreciated against the Euro, Australian dollar and Canadian dollar, in which the two latter currencies are usually strongly correlated with gold and silver prices; however, during the second part of August, the US dollar depreciated against these currencies; this shift is consistent with the shift in the silver price’s movement as it rose very sharply from August 10th while the US dollar weakened. This doesn’t explain, however the growth in gold price.

The chart below shows the changes in gold and silver prices during August, in which the prices were normalized to 100 on July 29th 2011.

Gold prices forecast & silver price outlook 2011 September 4

The next chart presents the changes in the ratio of gold price to silver price (gold price/silver price) during August and the first couple of days of September; the ratio had a sharp upward trend during the first couple of weeks of August, as gold price has outperformed silver price; but during the last couple of weeks of August the ratio stabilized around the 43-45 mark and even had a slow downward trend as silver price slightly outperformed gold price.

Gold and Silver prices ratio 2011 August 3

Here are several factors that may have affected silver price and gold price to rise:

  1.  The downgrade of US’s credit rating from AAA to AA+ by the rating agency S&P during the first week of August;
  2. The Speculations around the Fed’s next action and whether it will announce another stimulus plan coming the September FOMC meeting;
  3. The increase in gold holding by private entities and governments (see below);
  4. The sharp falls in the US stock market indexes during most of August (see below);
  5. The rapid falls in long term US Treasury bills yields as traders were seeking safe heaves(see below);
  6. The Fed’s decision to keep interest rates low at least until mid-2013(see below);
  7. The moderate gain in the US federal deficit during July 2011;
  8. The weakening of US dollar compared with the Euro, Austrian Dollar, Canadian dollar and Japanese Yen during the second half of August (mainly correlated with silver price);
  9. The debt crisis in Europe including the speculation around Greece’s default on its debt, and Italy’s struggle to sell its bonds, also contributed to the financial instability in the markets and thus further pushed traders towards safe havens.

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