Gold and silver prices fell very sharply yesterday as did the rest of the major commodities, probably due to the strengthening of the USD compared to major currencies; let’s see what is up a head in the precious metal market for the last day of this exciting week, May 6th:
The EURO/ US dollar connection
As presented in the monthly analysis about gold and silver prices, the weak dollar compared to major currencies may have contributed to the rise in gold and silver prices during April.
Nonetheless, the drastic falls of major commodities as the USD appreciated against many currencies including the EURO may have the most been the most significant factor in the decline of gold and silver prices yesterday.
As seen in the chart below, the EURO/USD daily percent change had a very strong correlation between it and gold and silver prices daily percent changes.
Granted, we only have very few samples in May, and as such it renders the presented correlations not significant, however this gives some perspective on the strong link the EURO/USD has during May (so far) with gold and silver prices.
One of the reasons for this reaction of EURO/USD crashing by nearly 2% in a single day, might be related to the change in direction that the ECB took as ECB president – Jean-Claude Trichet didn’t raise the interest rate of ECB and the rate remained at 1.25%.
Gold and silver prices – May
Gold prices dropped below the 1,500$ mark and reached yesterday 1,481$, a decline of 2.24% – this is the sharpest fall for gold since January 4th, 2011.
Silver price kept on its freefall and reached 36.24$ a drop of 7.99%.
During May, silver price decreased by 25.4%, while gold price decreased by 4.8%. Notice as seen in the chart below, in normalized terms (100= April 1st) silver prices declined to reach below the current normalized gold prices.
Despite the crash of silver prices at a sharper rate than gold prices, these two metals are still highly correlated as seen in the chart below.
The gold to silver ratio: As of yesterday, May 5th the ratio between gold and silver prices rose to above the 40 mark ands reached 40.88. The ratio could be interpreted as one troy ounce (31.1 gram) of gold is worth 40.88 troy ounces of silver – the last time the ratio was above the 40 mark was back in March 17th.
The gold to silver ratio rose very rapidly by over 27.6% during May. This shift in trend is the first one in 2011.
The effect of the increase in Silver Margins
CME Group raised the margin requirements on silver trading at the beginning of the week. This was the second margin increase within a week’s time. Under the recent terms the minimum amount needed to deposit will be 16,200$ per contract, an increase of 11.6% from the pervious amount needed. The ramifications of that announcement seem very clear as silver prices, as presented above deseeded very precipitately during the week.
US employment report
Today the employment report will be published, in the previous report regarding March 2011, the number of non-farm payroll employment increased by 216 thousand people and the US unemployment rate declined to 8.8% a minor drop of 0.1 percent point compared to February 2011. The current expectations are that the unemployment rate will not show good results.
Yesterday’s U.S. jobless initial claims report didn’t show good results. This might also be an indication that the April employment report won’t show progress.
Update from Middle East
Currently most of the Libyan fighting takes place in the rebel-held city of Misrata where Gaddafi’s forces continue to strike the rebels.
See here for a more detailed update on Middle East and its effect on commodities’ markets.
Current Gold and Silver prices
European markets show major precious metals prices are traded at mixed trends:
The current gold price, short term futures (June 2011 delivery) is traded at 1,514.3 USD / t oz. a 3.8$ increase or 0.26%, as of 11.09*.
Current silver price, short term futures is at 34.75 USD / t oz – a 1.49 decline or 4.11%, as of 11.09*.
(* GMT)
The current ratio of gold to silver prices is at 42.73
Gold and silver prices Outlook and Analysis:
The freefall of silver prices keeps on going with no clear end in sight, and might continue to decline throughout the day until the correction to the silver price will be completed due to the factors listed above.
Gold prices dropped yesterday, probably due to the decision of ECB not to raise interest rate despite expectations. This reaction seems to have dissipated and now gold is traded with little changes. This might continue throughout the rest of the day unless the US employment report will beat expectations and surprise the financial community.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
Today
12.00 – Canada unemployment rate report
13.30 – US unemployment rate report & non-farm employment change
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