Gold and silver prices starting off the week with moderate rises, but as the high uncertainty in the financial markets will continue, we are likely to see shift in the direction of gold and silver prices during the day. Let’s examine the precious metal market for May 16th:
Gold and silver prices – May
Gold price finished off the week with a drop of 0.88% as it fell again below the 1,500$ mark and reached 1,493$.
Silver price on the other hand bounced back and reached on Friday 35.013$, a rise of 0.62%.
During May, gold price decreased by 4%, while silver price declined by 28%.
The chart below of normalized silver and gold prices (100= May 2nd) shows the downward trend in both of these metals during May.
The gold to silver ratio: As of Friday, May 13th the ratio between gold and silver prices fell to 42.66. The ratio could be interpreted as one troy ounce (31.1 gram) of gold is worth 42.66troy ounces of silver.
The US dollar and gold and silver prices
During May, the rapid changes in gold and silver prices were probably 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 between USD/CAD and gold prices with nearly 85% linear correlation, and between AUD/USD and gold prices with 90% correlation.
The uncertainty in the financial markets related to the direction of the US and European markets 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’s speech – Today, the Federal Reserve chairman will give a speech about the labor market and economic growth. Since the stimulus plan of the Federal Reserve is about to end in June, he’s speech might offer some perspicacity into the future plans of the Fed in order to stimulate the US economy.
Euro Area CPI – today, the April core CPI will be published of the Euro Area. The report is likely to show a rise in CPI mainly because of the rising energy prices. This news might affect the Euro currency and consequentially the oil prices as seen above, and as the news about the Q1 2011 GDP of Europe from last week caused a sharp fall in the Euro/USD on Friday.
The concerns around the stability in the Middle East aren’t just because many of OPEC members are located there, but also because of its pivotal location for transport. See here for the recent news from the Middle East.
Current Gold and Silver prices
In the US markets, major precious metals prices are traded with moderate rises:
The current gold price, short term futures (June 2011 delivery) is traded at 1,503.4 USD / t oz. a 9.8$ increase or 0.66%, as of 15.23*.
Current silver price, short term futures is at 35.13 USD / t oz – a 0.117 incline or 0.33%, as of 15.24*.
The current ratio of gold to silver prices is at 42.78.
Gold and silver prices Outlook and Analysis:
The direction shifts in gold and silver prices during last week, demonstrate the high uncertainty in the financial markets; this condition might be stemmed from:
The speculation around the US dollar over the future plans of the Fed once the quantitative easing plan will end in June;
The economic recovery of Europe, and its debt crisis including in Greece, Ireland and Portugal;
The demand changes for gold and silver in China as its economy might slow down compared to recent years.
These factors, among others, will continue to affect the high volatility we currently experience in the financial markets and the precious metals 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):
10:00 – Euro Area CPI and core monthly inflation (April)
14.00 – Ben Bernanke, Chairman of Fed, speaks
2.30 – Monetary Policy meeting Australia’s Bank
For further reading (in this site):
- Weekly outlook for May 16-20
- Gold didn’t move | Silver kept on falling – weekly recap 9-13 May
- Gold and silver prices outlook May 2011 – what’s next for gold & silver?