Gold and silver prices tumbled down again during yesterday along with other commodities prices. The new elections in Greece will be held on June 17. In the meantime the ECB temporarily stopped lending to several Greek banks.
Did the minutes of the recent FOMC meeting suggest another QE program on the way? I don’t think so.
On a positive note Japan’s GDP expanded by a higher rate than expected of 4.1% in annual terms during Q1 2012 (1% growth in Q-O-Q terms).
The U.S housing starts rose by 2.6% in April.
On today’s agenda: U.S. Jobless Claims (Update: Jobless claims remained unchanged at 370k), Philly Fed Manufacturing Index (update: Philly Fed dropped to -5.8 in May – this may be among the factors to pull up bullion) and Spanish 10 Year Bond Auction will be held. Currently precious metals prices are spiking.
Here is a short analysis for gold and silver prices for Thursday, May 17th:
Precious Metals – May Update
Gold price declined again on Wednesday by 1.32% to $1,536.6; silver also tumbled down by 0.96% to $27.2. During the month gold fell by 7.67% and silver by 12.32%.
The chart below presents the normalized prices of metals during month so far (both metals rates are normalized to 100 as of April 30th).
The ratio between two precious metals continued to increase as it reached yesterday 56.5. During the month the ratio rose by 5.3% as silver has moderately under-performed gold during the month. In the chart below are the developments of this ratio during May.
Yesterday the minutes of the April FOMC meeting were released; it didn’t reveal much. The FOMC members didn’t think another stimulus plan is needed for now as the U.S economy is progressing from the GDP and Labor market perspective. On the other hand some investors might consider the following statement as an indication of another QE program on the way:
“Several members indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough.”
I think it is not sufficient evidence to determine another QE program on the way, at least at this stage. If the U.S labor market will show signs of slowdown it might put back on the table the QE3 path.
On Today’s Agenda
U.S. Jobless Claims Update: in the previous report the jobless claims edged down to 367,000; this upcoming weekly update may affect the direction of the U.S dollar and consequently bullion;
Philly Fed Manufacturing Index: In the previous April survey, the growth rate moderately declined from +12.5 in March to +8.5 in April 2012. If this trend will continue this index may adversely affect not only U.S Dollar but also gold prices (the recent Philly Fed review);
Spanish 10 Year Bond Auction: Spain will issue a bond auction; following the ongoing economic slowdown and the perils Spain is facing from economic perspective, this bond sale may signal the confidence of traders in the Spanish economy and thus may affect the Euro Market;
U.S. Treasuries / Gold– May
The U.S. 10-year Treasury yield remained unchanged on Wednesday at 1.76% – the lowest level since September 22nd, 2011. During May the 10 year treasury yield fell by 0.19 percent point. This decline in LT securities yields may indicate that the demand for “secure investments” continue to rise. During May there was a mid-strong positive correlation between the changes in U.S. long term Treasury yield and shifts in gold price. The chart below shows the development of the U.S. 10 yr yield vs. gold price during the month. The recent rise in demand for U.S. 10-year Treasury might be stem from the high anxiety levels in Europe. The chart below suggests that if the LT U.S. treasury yield will continue to decrease, it might indicate that gold price will further decrease.
The Euro/U.S Dollar edged down on Wednesday by 0.1% to 1.2716 – the lowest level since January. During the month (UTD) the Euro/U.S Dollar declined by 4%; furthermore, the Aussie dollar and Canadian dollar also depreciated on Wednesday against the U.S. dollar by 0.23% and 0.51%, respectively. Since these currencies pairs are still correlated with metals prices, if the U.S dollar will continues to appreciate against these currencies, bullion prices may continue their downward trend. Currently the Euro is rising against the USD.
Current Gold and Silver Prices as of May 17th
Gold (June 2012 delivery) is traded at $1,553.8 per t oz. a $16.4 or 1.07% increase as of 06:58*.
Silver (June 2012 delivery) is at $27.74 per t oz – a $0.544 or 2.00% increase as of 06:58*.
Daily Outlook for May 17th
Gold and silver prices sharply declined again yesterday and thus both metals completed a four day consecutive fall. But currently bullion prices are rising. This might be stems from further speculation of the FOMC’s next step and perhaps even the possibly of another QE program. I think it’s too soon to determine whether there will be QE3 in the near future and the current progress of the U.S economy from the GDP and Labor point of view doesn’t seem to warrant another stimulus plan. The progress in Japan’s economy might also play a role in the rally of commodities prices. Finally the upcoming U.S reports mainly the Philly Fed and Jobless claims may affect not only the US dollar but also bullion market.
Here is a reminder of the top events and reports that are planned for today and tomorrow (all times GMT):
Tentative – Spanish 10 Year Bond Auction
13:30 – U.S. Jobless Claims Weekly Update
15:00 – Philly Fed Manufacturing Index
15:30 – EIA U.S. Natural Gas Storage Update
Tentative – GB 10 Year Bond Auction
13:00 – Canada’s Core CPI
All Day – G8 Meeting
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