Gold and silver prices changed direction and plummeted yesterday: silver, even more than gold, declined by 6.89%. The last time gold and silver declined so sharply and promptly was back on December 14th when the FOMC disappointed bullion traders as there were no announcements of QE3. This time was very similar and Bernanke’s testimony disappointed traders. Furthermore, ECB announced yesterday the bank will allot €529.5 billion to LTRO – this was higher than expected and may have also affected Euro/USD. Finally, the US GDP 2011 Q4 growth rate reached 3% according the recent update. This news may have also pushed up US dollar against other currencies and lowered the chances of another QE3. Currently gold and silver prices are rising. Today there are several items of the agenda worth mentioning including: the US jobless claims weekly update, the U.S. ISM Manufacturing PMI and the Bernanke will testify again in the House of Representatives.
Here is a short analysis on gold and silver for Thursday, March 1st:
Gold and Silver– February Update
Gold price sharply fell on Wednesday by 4.31% to $1,711.3; silver even more than gold plummeted by 6.89% to $34.64. During February, gold fell by 1.67% while silver increased by 4.15%.
The chart below shows the developments of gold and silver during the month (prices are normalized to January 31st).
The ratio between gold and silver sharply rose during Wednesday, and reached 49.40. During February the ratio declined by 5.59% as silver has outperformed gold. In the chart below are the changes in this ratio during February.
The rise and fall of Silver
After silver had increased by 8.4% within five business days, it soon changed direction and yesterday’s drop nearly nullified the recent rally. This shift might only further indicate that the recent silver rally was mostly a speculative one. Furthermore, if this high volatility will continue it might prompt CME to raise the margins on silver to cool down the market.
St. Deviation of Gold and Silver
Due to yesterday’s turn of events gold and silver prices volatility increased for February: the standard deviations of silver and gold reached its highest level this year so far.
On Today’s Agenda
Bernanke Testifies: following yesterday’s testimony and the immediate effect it had on gold and silver prices, Bernanke is set to testify again today before the Committee on Financial Services, of the U.S. House of Representatives; the title of the speech is “Semiannual Monetary Policy Report to the Congress” ; if Bernanke will try to make a correction to yesterday’s testimony ramifications, it might affect the bullion markets;
U.S. Unemployment Claims: initial claims remained unchanged at 324,000 claims for the week ending on February 17th; the number of insured unemployment decreased by 52k to 3.392 million during the week of February 11th; the upcoming weekly update might affect the strength of US dollar;
U.S. ISM Manufacturing PMI: This report will present the monthly development in the manufacturing sector on a national level. In the recent report, the index increased to 54.1%; this index might affect commodities prices (see here my review of last report);
Forex / Gold & Silver Market – February
The Euro/U.S Dollar sharply rose on Wednesday by 0.99% to 1.3325. During February Euro/U.S Dollar increased by 1.8%; furthermore, the Australian dollar also depreciated against the U.S. dollar by 0.32%. Since these two currencies are historically linked with the changes of gold and silver prices; if the Euro and Australian dollar will continue to trade down during the day; it could indicate that gold and silver prices will also trade down. Currently, the Euro/USD is slightly falling.
Current Gold and Silver Prices March 1st
Gold (April 2012 delivery) is traded at $1,719.7 per t oz. a $8.4 or 0.49% increase as of 07:59*.
Silver (April 2012 delivery) is at $34.94 per t oz – a $0.298 or 0.86% increase as of 07:59*.
Gold and Silver Daily Outlook
Gold and silver prices changed direction and plummeted yesterday by the largest scale in a long time. This means we might be headed towards a bumpy ride… The US GDP update, Bernanke’s testimony and the recent larger than expected LTRO affected not only forex market (especially the Euro), but also commodities prices. Following such a huge drop in gold and silver today there might be a market correction – I speculate there could be a slight gain to these precious metals. The upcoming reports including US jobless claims and US manufacturing PMI could affect the US dollar and consequently gold and silver prices. Finally, the upcoming back to back testimony of Bernanke could also affect the US dollar and bullion if he will try to make a correction to yesterday’s testimony ramifications. .
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13:30 – Department of Labor Report – U.S. Unemployment Claims
15:00 – Bernanke Testifies
15:00 – U.S. ISM Manufacturing PMI
15:30 – EIA U.S. Natural Gas Market Report
13:30 – Canada’s GDP by Industry
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