The last day of the week is upon us, and currently gold and silver prices are traded up. Will this rally last? Let’s examine the news related to these precious metals for today, May 27th:
Gold and silver prices – May
Gold price declined yesterday by 0.27% after it rose during most of the week; it reached by the end of the business day to 1,523$.
Silver price also declined yesterday, but very moderately by 0.83 to 37.33$.
During May, gold price decreased by 2.1%, while silver price declined by 23.2%.
The chart below of normalized silver and gold prices (May 2nd 2011=100) shows the fall and rise of gold and silver prices during May.
The gold to silver ratio: As of Thursday, May 26th the ratio between gold and silver prices declined to 40.82 – since the beginning of May this ratio inclined by 27.5%.
The chart below shows that this ratio changed directions during 2011 several times and appears to decline in recent days as silver prices have been outperforming gold prices.
Despite this rally of silver prices over gold prices, these two metals are still highly correlated as seen in the chart below:
There are ample concerns over the ongoing debt crisis in Europe (see below for further details); during May there was a moderate linear correlation between Euro to US dollar conversion rate and silver prices daily percent changes (40.8%) and a low correlation with gold prices (29.6%).
This correlation isn’t reliable because during previous months these correlations were very low, nonetheless it does show that during May as silver and gold prices declined, the Euro to US dollar conversion rate also fell, i.e. the US dollar strengthened compared to the EURO.
The chart below shows the correlations of gold and silver prices (daily percent changes) with EURO/USD during recent months.
In May, the Euro to US dollar conversion rate fell by 4.5%.
One of the prime concerns that might be responsible to the high decline of the EURO/USD is over the debt crisis in Europe and the questions over the restructuring of Greece’s debt.
This new might have affected major currencies and strengthen the US dollar and consequently drive major commodities including gold and silver down.
US – jobless claims report
Yesterday, the U.S. jobless claims weekly report was published and showed an increase in initial claims by 10,000 for the week ending on May 21st, and it reached 424,000 claims (seasonally adjusted data). This news doesn’t look well for the US economy’s recovery, and might be among the news items that will influence traders to trade down the US dollar weakened compared to major currencies; that being said, major commodities were traded down yesterday despite that this news.
Current Gold and Silver prices
Major precious metals prices are traded with moderate rises in the European markets:
The current gold price, short term futures (June 2011 delivery) is traded at 1,528.1 USD / t oz. a 4.4$ increase or 0.29%, as of 08.51*.
Current silver price, short term futures is at 37.87 USD / t oz – a 0.540 incline or 1.45%, as of 08.51*.
The current ratio of gold to silver prices is at 40.34.
The EURO/USD is traded up at 1.4259 a 0.8021% rises as of 08.56*.
The USD/CAD is traded up at 0.9768 a 0.0936% rises as of 08.56*.
Gold and silver prices Outlook and Analysis:
Gold and silver prices continue to zigzag with no clear trend during the last couple of weeks, despite the recent rises in the last few days. Current precious metals are traded up but this might change during the day.
The recent bullish recommendations of Goldman Sachs and JP Morgan to go long on major commodities, including gold and silver, might be among the reasons that traders rekindled their interest in precious metals.
I speculate, that gold and silver prices will remain put for now, until there will be a real move by one of the major central banks, e.g. Federal Reserve or ECB, that will affect major currencies and consequently gold and silver prices. In the mean time, gold price is likely to remain around the 1,500$-1530$ and silver price around the 35$-37$, mark.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
13.30 – Department of Labor report – US unemployment claims
13:30– US GDP 1Q 2011report
15.30 – EIA report about Natural gas storage
For further reading (in this site):
- Weekly outlook for May 23-27
- Gold and Silver ended the week rising – weekly recap 16-20 May
- Gold and silver prices outlook May 2011 – what’s next for gold & silver?