Gold and silver prices are currently traded at moderate changes, after gold rose and silver fell yesterday; where is the market headed today? Let’s examine the precious metal market for May 13th:
Gold and silver prices – May
Silver price on the other hand continued to fall and reached yesterday 34.80$, a decline of 2.02%.
During May, gold price decreased by 3.2%, while silver price declined by 34.80%.
The chart below of normalized silver and gold prices (100= May 2nd) shows that they are still traded below their initial price level they started at the beginning of May.
The gold to silver ratio: As of yesterday, May 12th the ratio between gold and silver prices rose to 43.3 – its highest level since February 17th as seen in the chart below. The ratio could be interpreted as one troy ounce (31.1 gram) of gold is worth 43.3 troy ounces of silver.
The gold to silver ratio rose very rapidly by over 35.2% during May and thus nearly wiped out most of the gains that silver had over gold in 2011.
The effect of US dollar on gold and silver prices
During May, the rapid fluctuations in gold and silver prices were likely to be stimulated, in part, by the changes in the US dollar compared to major currencies.
The chart below shows the strong correlation of gold and silver prices (daily percent changes) with four major exchange rates: AUD/USD, EURO/USD, USD/YEN and CAD/USD.
During May, so far, the strongest linear correlations were among USD/CAD and AUD/USD and gold and silver prices.
The uncertainty in the financial markets related to the direction of the US dollar is reflected in the major commodities prices including gold and silver prices. The strong correlation, might be an indication of causation, however it’s still early in the month to reach such a conclusion.
Ben Bernanke’s testimony yesterday
The chairman of the Federal Reserve Ben Bernanke testified yesterday before the US senate. The subject of his testimonial speech was Dodd-Frank Implementation: Monitoring Systemic Risk and Promoting Financial Stability. In his speech, he didn’t give away much on the plans of the Federal Reserve in the near future, only referred to the Dodd-Frank Wall Street Reform and the cooperation of the Fed with the Financial Stability Oversight Council (FSOC) to monitor the stability of the banking sectors and the further incorporate the Basel III agreements into U.S. regulations.
The uncertainty around what’s next for the Fed once the quantitative easing plan will end this coming June; in the quantitative easing plan the Federal Reserve printed 600 billion US dollar since November 2010, and purchased bonds including US government bonds in an attempt to stimulate the US economy.
Consumer price index report in the US
Today the CPI for the month of April will be published in the US. It will likely to show a rise especially due to the high commodities prices including energy and food. During March the CPI rose by 0.5% which is 2.7% in Year to Year terms.
Update from Middle East
Current Gold and Silver prices
In the European markets, major precious metals prices are traded with rises:
The current gold price, short term futures (June 2011 delivery) is traded at 1,511.4 USD / t oz. a 4.6$ increase or 0.31%, as of 10.08*.
Current silver price, short term futures is at 35.33 USD / t oz – a 0.533 incline or 1.53%, as of 10.08*.
The current ratio of gold to silver prices is at 42.76.
Gold and silver prices Outlook and Analysis:
The zigzag in gold and silver prices during recent weeks, only shows of the high uncertainty in the financial markets; this condition might be stemmed from many factors that pull the prices to different directions.
These factors include the speculation around the US dollar over the future plans of the Fed once the quantitative easing plan will end in June;
The uncertainty relate to the debt crisis in Greece and Portugal (for Europe); the changes in demand for gold and silver in China. These factors and many others contribute to the high volatility we currently experience in the financial markets.
I still speculate that in the short term, silver and gold prices will remain high and the current uncertainty in the currencies market will reflect in high volatility in the commodities markets.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
13.30 – Report on US CPI
For further reading (in this site):
- Weekly outlook for May 9-13
- Gold & Silver started May with sharp falls | 2-6 May
- Gold and silver prices outlook May 2011 – what’s next for gold & silver?