Gold and silver prices continue the upward tend of last week and finished yesterday with rises. Today, several publications will be released vis-à-vis the US real estate market including US building permits and US housing starts; the Canadian bank will make its decision on the overnight rate.
Let’s examine the news of the day related to the precious metals market for today July 19th:
Gold and silver prices –July
Gold price continues to rise and finished yesterday, July 18th with a 0.77% to $1,602 – its highest price level in 2011. Gold price rose for tenth consecutive days.
Silver price also inclined by 3.25% to $40.34 – the highest price level since May 3rd.
During July, gold price increased by 6.6%, and silver price inclined by 15.8%. The last time there were such sharp rises in the bullion market was back in April 2011.
The chart below shows the normalized gold and silver prices (June 30th 2011=100). It shows that silver price continues to outperform gold price since the middle of last week.
The gold to silver ratio: the ratio between gold and silver prices shifted direction again and during July it has been declining as it reached on Monday, July 18th 39.72 – its lowest level since May 10th, as silver price has outperformed gold price; during July this ratio declined by 7.9%.
Euro Debt – Summit on Thursday
The Euro to US dollar is shifting direction on a daily basis (see below) as there are concerns over the debt in Europe and debt ceiling in the US.
On Thursday, The European Union government leaders plan to meet for the second time in an attempt to break the current deadlock they are at over the Greek bailout plan. In the mean time the Spanish and Italian bond yields as the uncertainty in Europe rises. Italian bond yields reached 5.76% – a 0.96 percent point increase in July; Spanish bond yields rose by 0.6 percent points to 6.07%.
US Real Estate Market June 2011
There are several reports that will be published today including US building permits and US housing starts. Historically, these reports had a negative effect on gold prices, when controlling for these reports’ effect on US dollar. The main report that supposes to have a lagged negative effect is the housing starts: according to Roache et. al (2008)* there is a lagged by one day negative correlation between Housing starts and gold price; i.e. as the Housing starts rises, gold price falls the following day; in the recent report, the housing starts inclined by 3.5%, yet gold prices inclined the following day by 0.6%.
*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?”
The U.S. Treasuries longer-term notes
Yesterday the U.S. Treasuries longer-term notes report for May was published. It showed an increase in purchases of U.S. Treasuries longer-term notes by China, Japan and UK. This recent rise is probably one of the reasons for the robustness of US dollar in recent months despite the quantitative easing plans of the Federal Reserve. If this trend will continue the following months it may further strengthen the US dollar and consequently weaken major commodities including gold prices.
US Dollar / Gold & silver prices – July update
During June, the EURO/USD, USD/AUD and CAD/USD were highly correlated with the daily percent changes of gold and silver prices. The Euro to US dollar exchange rate fell during July by 2.7%, the Australian dollar to US dollar by 1.1% and US dollar to Canadian dollar by 0.4%. This means that among these currencies, the US dollar depreciated only against the Canadian dollar. Today the Canadian rate decision will be made; if the rate will increase, it may further weaken US dollar and consequently might further push up gold and silver prices.
Australian rate decision
As expected, the overnight cash rate remained unchanged 4.75%.
Current Gold and Silver prices
The precious metals prices are currently traded up in the European markets:
The current gold price, short term futures (August 2011 delivery) is traded at $1,608.6 per t oz. with a $6.2 increase or 0.39% as of 08:38*.
Current silver price, short term futures is at $40.775 per t oz – a $0.433 incline or 1.07%, as of 08:38*.
The current ratio of gold to silver prices is at 39.45.
Gold and silver prices Outlook:
Gold and silver prices keep on rising and break new record highs, as gold price passed the $1,600 mark and silver price passed the $40 mark. In regards to the upcoming US real estate reports: I think that there are currently much stronger forces that will likely to determined gold and silver prices; even if there will be positive report on the real estate market, there will still rises in gold and silver prices.
The debt concerns in US and Europe will continue to steer traders to gold and silver, until these debt concerns will subside. Therefore I’m still bullish on gold and silver in the following days.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13.30 – U.S. Building Permits
13.30 – U.S. Housing Starts
14.00 – Canada overnight rate
15:00 – U.S. existing home sales
15:30 – EIA report about Crude oil inventories
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.