Gold and silver prices are currently traded with moderate rises, after they have fallen for two straight days. Will these price rises continue? Let’s examine the precious metal market for May 17th:
Gold and silver prices – May
Silver price also declined and reached on Tuesday 33.49$, a 1.88% decline.
During May, gold price decreased by 4.9%, while silver price declined by 31.1%.
The chart below of normalized silver and gold prices (100= May 2nd) shows the downward trend of both of these metals prices during May.
The gold to silver ratio: As of Tuesday, May 17th the ratio between gold and silver prices rose to 44.19. The ratio could be interpreted as one troy ounce (31.1 gram) of gold is worth 44.19 troy ounces of silver.
Despite that silver price underperformed gold price, these two metals are still very strongly correlated as seen in the chart below:
The Correlation of major currencies and gold and silver prices
During May, the rapid falls of silver prices, and moderate falls of gold prices, mainly at the beginning of the month were probably stimulated, in part, by the changes in major exchange rates:
The chart below shows the strong correlation of gold and silver prices (daily percent changes) with major currencies.
During May, so far, the highest linear correlations were between AUD/USD and gold prices at 75% correlation, and between USD/CAD and silver prices at 70%.
In regards to the AUD/USD exchange rate: Australia is among the leading countries in exporting gold: during the last quarter of 2010, Australia was the leading country in gold production growth. This growth was due to rising production of Newmont Asia Pacific.
The decline in gold prices during May, probably affected the AUD/USD as it declined by 2.7% during May (UTD).
Canada is also an important player in the major commodities markets including crude oil, gold and silver.
The high silver prices probably contributed to the strengthening of the Canadian dollar and vice versa. As an example, it was also reported in Reuters that Canada’s First Majestic Silver mining company reported very high increase in first quarter of profit due to the high silver prices at that time.
In other words, the high silver prices were related to the fall in USD /CAD during the first few months of 2011.
During May the USD /CAD exchange rate grew by 2.9% and this growth coincided with the drop in silver prices.
JP Morgan – gold and oil will bounce back
In an interview to Bloomberg, Ray Eyles, CEO of JP Morgan’s commodities business in Asia, says that major commodities including gold and crude oil will make a comeback in the long run mainly because of the rising demands in Asia including China that will drive prices up.
Euro Area Construction report – according to the recent report published by Euro Stat, the construction output in March declined compared to February 2011 by 0.3% in the Euro Area. This shows an economic slowdown in Euro Area even though there were rises in UK (+15.8) and Germany (6.2%). This news might affect the trading today on EURO/USD and consequentially might affect gold and silver prices.
Will there be a Greek Debt restructuring? According to an interview to Bloomberg, European Central Bank Executive Board member Lorenzo Bini Smaghi says that there won’t be a restructuring of the Greek debt because this may put Europe in jeopardy. The struggles Greece along with Ireland and Portugal face in paying off their debt to ECB will continue to hang over Europe’s stability and affect its uncertainty.
Housing starts fell during April – despite optimistic forecasts, it’s reported that the annual pace of housing starts fell by 11% to 523,000 houses as of April 2011. This slowdown is also likely to drive away from US dollar any might stimulate a rise in hedging commodities such as gold and silver prices.
Middle East, China and Japan News
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 1,492.5 USD / t oz. a 12.5$ increase or 0.84%, as of 11.05*.
Current silver price, short term futures is at 34.58 USD / t oz – a 1.089 incline or 3.25%, as of 11.07*.
The current ratio of gold to silver prices is at 43.14.
Gold and silver prices Outlook and Analysis:
Gold and silver prices continue to demonstrate high uncertainty and no clear direction as they both zigzagged in recent weeks after they have tumbled down, mainly silver price, at the beginning of May.
The speculation around the US dollar continues, and the recent news about the decline in housing starts might stimulate traders to trade up gold and silver. But there is still high speculation around the next moves of the Fed, once the quantitative easing plan will end in June; as long as there is uncertainty on this front, all things being equal, gold and silver will continue to zigzag with no clear path.
The same goes for the uncertainty around the debt crisis in Europe including in Greece, Ireland and Portugal;
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 these metals’ prices.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
15.30 – EIA report about Crude oil inventories
19.00 – FOMC meeting minutes regarding rate decision
13.30 – Department of Labor report – US unemployment claims
15.30 – EIA report about Natural gas storage
Bank of Japan – rate decision and monetary policy statement
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?