Gold continued to trade down, while silver edged up during yesterday’s trading. The FOMC announced it will extend its operation twist, in which the Fed extends the average maturity of its holdings of securities, throughout the rest of the year. This expansion is estimated at roughly $267 billion. According to the recent HSBC flash report on China’s manufacturing, it is projected China’s growth may have declined. This news may adversely affect commodities prices. Currently gold and silver are decreasing. On today’s agenda: Euro Area Manufacturing PMI, British 10 Year Bond Auction, Canada’s Retails Sales, U.S. Jobless Claims Weekly Report, U.S. Existing Home Sales, Philly Fed Manufacturing Index and ECB President Draghi will give a speech.
Here is a short analysis for gold and silver for Thursday, June 21st:
Precious Metals –June Update
Gold price edged down on Wednesday by 0.23% to $1,623.2; silver also fell by 1.06% to $28.37. During the month gold rose by 3.77% and silver by 2.2%.
The chart below shows the normalized rates of these precious metals during June (normalized to 100 as of May 31st).
The ratio between the two metals increased on Wednesday to 57.22. During the month the ratio rose by 1.54% as silver has slightly under-performed gold.
FOMC Extend Operation Twist
The Fed announced it will continue its operation twist in which the Federal Reserve will extend the average maturity of its holdings of securities throughout the rest of 2012. This operation twist was first started back in September 2011 and was suppose to end in June 2012. On the other hand, as anticipated, the FOMC didn’t introduce QE3.
The FOMC decided to extend its operation twist by roughly $267 billion until the end of the year. In particular the Fed will:
“to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less.”
Further, the FOMC also lowered its projection of U.S GDP growth from a range of 2.4-2.9 to 1.9-24 for 2012. The Estimate for 2013 was also cut from 2.7-3.1 to 2.2-2.8.
Despite the expansion of the operation twist, it didn’t seem to impress much the bullion traders as gold price continued to decline.
MPC Left Policy Unchanged
Following the recent MPC meeting, the statement that followed revealed the members decided in a close vote to keep the rate flat at 0.5% and the asset purchase program, at £325 billion, This comes despite King’s vote to expand the asset purchase program by additional £50.
On Today’s Agenda
Euro Area Manufacturing PMI (June 2012): In the last report regarding May 2012, the Euro Zone Manufacturing PMI declined to 45.1, i.e a contraction. This report will provide an indicator to the economic growth of the Euro zone’s manufacturing conditions; this news, in turn might affect the Euro/USD exchange rate and consequently also major commodities prices;
Canada’s Retails Sales: This report may affect the direction of USD/CAD exchange rate, which is strongly correlated with bullion rates. In the previous report regarding March, retails sales rose by 0.4%;
U.S. Jobless Claims Weekly Update: in the latest report the jobless claims rose by 6k to 386,000; this upcoming weekly update may affect the USD;
U.S. Existing Home Sales: in the previous report regarding April 2012 the number of homes sold rose: the seasonally adjusted annual rate of 4.62 million home sales – a 3.4% increase; if this trend will continue it may help rally the USD;
Philly Fed Manufacturing Index: This monthly survey presents an estimate for the shifts of the US economy as it measures the manufacturing conditions. In the previous May survey, the growth rate fell from +8.5 in April to -5.8 in May. If this trend will continue this index may adversely affect not only U.S Dollar but also American stock indexes, and gold prices (the recent Philly Fed review);
British 10 Year Bond Auction: the British government will issue a bond auction; in the previous bond auction, which was held at the beginning of April, the rate reached 2.22%;
ECB President Draghi Speaks: Following the ECB rate decision, the Greek elections, the FOMC monetary policy and G20 meeting the President of the European Central Bank, Mario Draghi will speak; his speech may include the recent events in Europe including the future of Greece in the EU;
Currencies / Gold & Silver Market – June Update
The Euro/US Dollar rose on Wednesday by 0.17% to 1.2707. During the month (UTD) the Euro/U.S Dollar increased by 2.76%. Furthermore, other exchange rates including the Aussie dollar also appreciated during Wednesday against the USD by 0.05%. Despite the rise of the Euro and Aussie dollar, (apparently) gold wasn’t affected from this trend as it was traded down. Nonetheless, if the U.S dollar will continue to fall against these currencies, it may curb the decline of bullion rates. Currently the Euro is falling against the USD.
Current Gold and Silver Rates as of June 21st
Gold (July 2012 delivery) is traded at $1,606.8 per t oz. a $9 or 0.56% decrease as of 01:02*.
Silver (July 2012 delivery) is at $27.985 per t oz – a $0.404 or 1.42% decrease as of 01:02*.
(* GMT)
Daily Outlook for June 21st
The FOMC statement and the expansion of operation twist wasn’t what many bullion traders had hoped for. I speculate this news is likely to continue adversely affecting precious metals prices in the days to follow. Further, despite the Fed’s revised down projection of U.S economy the FOMC members didn’t vote for another QE; another quantitative easing is likely to be the main factor that could pull up bullion. This could mean if the U.S economy won’t shift towards a significant slowdown we won’t see QE3 and thus gold and silver will remain at their current level. The rise in Euro and Aussie dollar doesn’t seem to curb the decline in gold price. The upcoming U.S reports might affect bullion markets if these reports will present sharp changes.
Here is a reminder of the top events and publications that are scheduled for today and tomorrow (all times GMT):
Today
09:00 – Euro Area Manufacturing PMI (June 2012)
09:30 –Retails Sales GB (May 2012)
Tentative – British 10 Year Bond Auction
13:30 –Retails Sales Canada (April 2012)
13:30 – U.S. Jobless Claims Weekly Report
15:00 – U.S. Existing Home Sales
15:00 – Philly Fed Manufacturing Index
15:30 – EIA U.S. Natural Gas Storage Update
17:00 – ECB President Draghi Speaks
Tomorrow
09:00 – German Business Climate Survey
All Day – European Council Meeting
13:00 – Canada’s Core CPI
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