Gold price changed direction and fell for the first time this week following the recent margin hike by CME; silver price also followed and declined. The stock markets continue to zigzag and sharply incline yesterday. Gold and silver prices are traded with moderate changes. Today, the U.S. retails sales report will be published. The American trade deficit inclined in June.
Let’s examine the precious metals market for today, August 12th:
Gold and silver prices –August
Gold price declined yesterday by 1.84% to $1,751; silver price also followed and declined by 1.67% to $38.67.
During August, gold price increased by 7.4%, but silver price fell by 3.6%.
The chart below shows the normalized gold and silver prices (July 29th 2011=100). Gold price continues its upward trend during most of August; on the other hand, silver price is still well below its initial price level from the beginning of the month.
The gold to silver ratio: the ratio between gold and silver prices slight fell yesterday; the ratio reached on Thursday, August 11th 45.29. During August gold price has outperformed silver price as the ratio inclined by 11.4%.
Following the heavy trading and high speculation around the precious metals, mainly gold, CME (Chicago Mercantile Exchange), the world’s largest future market, decided to raise the margins needed to trade gold by 22% yesterday. Investors will need to put $7,425 to open a position on gold and maintain at least $5,500 to keep the position overnight. The rules came into effect at the end of Thursday’s trading, August 11th. This decision is likely to be one of the prime reasons for the recent sudden shift in gold prices that caused a cool down in the heavy gold trading in recent days. Don’t be surprised if there will be additional margin hikes in the near future, if the gold market will continue this borderline hysteria.
The last time there were margin hikes in precious metals was back in the end of April when CME raised the margins on silver trading by a total of 84% in series of increments.
On August 10th CME reported a record volume of 115,408 gold contracts, thus beating the prior record of 110,144 contracts traded on Aug. 4, 2011.
S&P500 / Gold & silver prices – August update
The S&P500 changed direction again and sharply rose yesterday by 4.63%. This reaction might have also cooled down some of the gains recorded in gold and silver prices. The correlation between bullion prices and S&P500 isn’t reliable, but the changes in S&P500 index are inline with the changes in gold price and to some extent even with the recent changes in silver price.
US Dollar / Gold & silver prices – August update
The Euro to US dollar exchange rate continue to zigzag over the concerns in Europe and the expected low rates in the US that push and pull this exchange rate into different directions. Yesterday, the Euro to US dollar rose by 0.44%; the US dollar depreciated against other currencies including the Australian dollar and Canadian dollar. These sudden shifts in the forex market demonstrate the high volatility in the financial markets and the when the markets are volatility traders will usually seek safe haven including gold and silver.
American trade balance – the deficit inclined in June
The American trade balance report showed an ongoing decline in transactions: in June 2011 the goods and services deficit increased by $2.3 billion compared to May 2011 and reached $53.1 billion; the goods deficit increased by $2.1 billion compared to May 2011 and reached $67.6 billion; the service surplus fell only $0.1 billion to $14.5 billion; these figures continue to demonstrate the economic slowdown of the US economy.
Current Gold and Silver prices
The precious metals prices are currently traded with mixed trends in the European market:
Current gold price short term future (September 2011 delivery) is traded at $1,761.7 per t oz. a $10.2 or 0.58% increase as of 09:10*.
Current silver price, short term futures is at $38.655 per t oz – a $0.014 or 0.04%, decline as of 09:10*.
The current ratio of gold to silver prices is at 45.55.
Gold and silver prices Outlook:
Gold price changed direction and slowed down from its rally due to the recent margin hike by CME. This decision is likely to continue affecting the gold trading throughout the day, and will curb the volume of trade and the percent changes. The high volatility in the financial markets including forex and stocks will probably continue to positively affect gold and silver prices. The economic slowdown in the US as seen in its recent trade balance report and the low growth rate of US GDP in Q2 2011 is likely to keep the uncertainly in the financial markets and the trade volume high. Therefore, I still think that gold and silver prices will resume their rally, but at a much less volatility than before once the correction to the recent CME margin hike will be completed.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
15:30 – Changes in US retail sales
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.