Gold and silver prices rallied for the second straight day and they currently continue to trade up. Today, the ECB will publish its decision about the interest rate; the Department of Labor will publish the U.S. unemployment claims in preparation for tomorrow’s employment report.
Let’s examine the news of the day related to the precious metals market for today July 7th:
Gold and silver prices – June/July
Silver price also inclined yesterday by 1.43% to $35.92 – the highest price also since June 22nd.
During July, gold price increased by 1.8%, and silver price inclined by 3.1%.
The chart below shows the normalized gold and silver prices (May 31st 2011=100). It shows, that gold price is nearing its price level back in the end of May; silver price is still well below its price level back in May 31st, despite its recent rally.
The gold to silver ratio: As of Wednesday, July 6th the ratio between gold and silver prices remained around the 42-43 mark as it fell to 42.58; during July this ratio declined by 1.3%, which means that during July (up to now) silver price has outperformed gold price.
Euro to US Dollar and Gold & silver prices – July update
The US dollar appreciated for the second straight day against major currencies mainly compared to the Euro. There are still concerns over the debt crisis in Europe, but the interesting thing is that bullion metals’ prices are traded up despite the strengthening of the US dollar (even though there is usually an opposite direction link, i.e. as the US dollar strengthen, gold and silver prices are usually traded down).
ECB rate decision
Today, in the upcoming press conference, European Central Bank President, Jean Claude Trichet, will announce the rate decision for the month of July (see here update about ECB rate decision). The rate is currently at 1.25% and remained unchanged for the past three months; there are those how think that Trichet might raise the interest rate by 0.25% (see here an analysis of this issue in Forex Crunch); however, currently the Euros to US dollar is traded down, partly due to Moody’s decision to downgrade Portugal’s debt from Baa1 to Ba2; the fall of the EURO/USD in the past couple of days might also suggest that the market expects Trichet to keep the rate at the same level mainly due to the debt crisis in Europe.
I would say that if eventually Trichet will raise the ECB rate, this decision is expected to have lagged negative effect on gold price, even when controlling for the effect it will have on USD; according to Roache et. al (2008)* there is a negative correlation between ECB rate decision and gold price; as the ECB rate rises, gold price falls the following day; in the recent rate raise back in April 13th, gold price declined.
*These correlations are based on the research done by Roache et. al (2008) in the paper named “the effects of economic news on commodity prices: is gold just another commodity?”
Current Gold and Silver prices
The precious metals prices are currently traded moderately up in the European markets:
The current gold price, short term futures (August 2011 delivery) is traded at $1,529.8 per t oz. with a $0.6 increase or 0.04% as of 08:59*.
Current silver price, short term futures is at $35.92 per t oz – a $0.04 incline or 0.01%, as of 08:59*.
The current ratio of gold to silver prices is at 42.58.
Gold and silver prices Outlook:
Gold and silver prices continued to strengthen in the past couple of days; the ECB rate decision will probably have a dramatic effect on gold price if ECB will raise the rate, otherwise it may keep pushing gold price up and silver price is likely to follow along.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13:30 – ECB conference Trichet speaks and Euro rate decision
13:30 – Department of Labor report – U.S. unemployment claims
15:30 – EIA report about Crude oil inventories
15:30 – EIA report about Natural gas storage
12:00 – Canada unemployment rate and employment report
13.30 – US unemployment rate report & non-farm employment change
For further reading: