Gold and silver prices rose very sharply yesterday over the news of Bernanke’s testimony and Moody’s rating warnings over US debt concerns. Today, the US producer price index will be published along the US unemployment claims.
Let’s examine the news of the day related to the precious metals market for today July 14th:
Gold and silver prices –July
Gold price inclined on Wednesday, July 13th by 1.48% to $1,585 – its highest price level in 2011. Gold price rose for seventh consecutive days.
Silver price very sharply inclined by 7.06% – the highest daily increase in 2011 – to $38.15.
During July, gold price increased by 5.5%, and silver price inclined by 9.5%.
The chart below shows the normalized gold and silver prices (June 30th 2011=100). It shows that gold and silver prices started July with falls, and in the last couple of days they have both rose very sharply.
The gold to silver ratio: As of Wednesday, July 13th the ratio between gold and silver prices sharply fell yesterday to 41.56 as the silver price percent increase was much higher than gold price’s; during July this ratio declined by 3.7%, which means that due to the shift from yesterday, during July (up to now) silver price moderately outperformed gold price.
Ben’s Testimony and Moody’s US rating
Ben Bernanke testified yesterday before the US senate. The disappointing labor reports of the past couple of months indicated that the US economy’s recovery is slowing down again. Yesterday Bernanke warded off any commitment that he will renew a stimulus plan, but he also didn’t close the door on this option (see here the entire testimony).
Notice that he said the following:
“… given the range of uncertainties about the strength of the recovery and prospects for inflation over the medium term, the Federal Reserve remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate. On the one hand, the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support. … Another approach would be to initiate more securities purchases or to increase the average maturity of our holdings. “
These statements keep the door open for an additional intervention of the Federal Reserve if the US economic slowdown, mainly represented in the Labor force, will continue.
Moody’s raised its concerns that the U.S. may loose its AAA rating raking: if the U.S. debt limit won’t be revised by beginning of August, Moody’s warns this might lead to a default of the US Treasury debt obligations. This news struck the market very promptly and affected all major markets including forex, commodities and stocks.
Yesterday the market responded to the mixture of Bernanke’s testimony and the Moody’s rating news and depreciated the US dollar, which immediately also reflected in the sharp raises in gold and silver prices.
China’s growth in GDP
Despite the restrictions taken by PBC to contain the progress of the Chinese inflation and consequently the Chinese economy, China’s GDP grew during the second quarter by 2.2% (Q-2-Q) and 9.6% in annual terms. Since China is among the leading countries in importing gold and silver, this news might be among the reasons to drive gold and silver prices up.
Euro, US Dollar / Gold & silver prices – July update
The Euro to US dollar exchange rate fell during July by 2.3%, but yesterday it rose very sharply by 1.37% probably over the news about Moody’s rating and Bernanke’s speech; During June, the EURO to US dollar exchange rate was highly positively correlated with the daily percent changes of gold and silver prices. Yesterday’s rise in Euro to US dollar coincides with the sharp gains of gold and silver prices, but as stated in the past this relation isn’t reliable and fluctuates so it should be taken with a grain of salt.
Current Gold and Silver prices
The precious metals prices are currently traded up in the European markets:
The current gold price, short term futures (August 2011 delivery) is traded at $1,588.0 per t oz. with a $2.5 increase or 0.16% as of 09:50*.
Current silver price, short term futures is at $38.935 per t oz – a $0.784 incline or 2.05%, as of 09:50*.
The current ratio of gold to silver prices is at 40.78.
Gold and silver prices Outlook:
Gold and silver prices experienced yesterday very sharp rises – for silver price this was the highest daily gain in 2011. The market continues to show distrust in the US and Euro zone economies and indicated that with the raid decline in US dollar along with the high gains of major commodities including gold and silver. Usually, following a sharp changes there are more moderate changes, especially if they are gains. Therefore I think that gold and silver prices will moderate change today but will likely to continue these gains until the uncertainty in the financial market around the stimulus plan of the US and the Euro debt crisis will be resolved.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13.30 – U.S. producer price index news
13:30 – Department of Labor report – U.S. unemployment claims
15:30 – EIA report about Natural gas storage
13.30 – Report on US CPI
For further reading: