Gold and silver prices broke formation and declined yesterday; this shift ended an upward trend of gold price since July 5th. Today, the US existing home sales will be published.
Let’s examine the examine the precious metals market for today, July 20th:
Gold and silver prices –July
Gold price shifted direction and declined yesterday, July 19th by 0.08% to $1,601. Gold price had been inclining for ten consecutive days before it declined yesterday.
Silver price also moderately declined by 0.3% to $40.22.
During July, gold price increased by 6.5%, and silver price inclined by 15.5%.
The chart below shows the normalized gold and silver prices (June 30th 2011=100). It shows the sharp rise of silver price since July 13th.
The gold to silver ratio: the ratio between gold and silver prices shifted direction yesterday as it rose by 0.2% on Tuesday, July 19th to 39.81; during July this ratio had a downward trend as silver price has outperformed gold price; it declined by 7.7% during July.
During July, the standard deviations of gold and silver prices remained very similar to the standard deviations in June, despite the shift in directions for both gold and silver 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 rose yesterday by 0.3%, the Australian dollar to US dollar by 1.19% and US dollar to Canadian dollar fell by 1.01%.
This means the US dollar depreciated against major currencies mainly Canadian dollar and Australian dollar. These moves should have strengthened gold and silver prices, but they didn’t so there are probably other factors that affected gold and silver prices to decline yesterday.
Canadian rate decision
Yesterday, the Bank of Canada kept the overnight rate unchanged at 1%.
US Real Estate Market June 2011
Following yesterday’s publication of the U.S. Census Bureau, the real estate market showed some signs of recovery as the building permits and the Housing starts rates inclined in June compared to May 2011 and June 2010.
These good indicators of the US real estate market might be among the factors that affected gold prices to shift direction: 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 rate rises, gold price declines; this news might continue to affect gold price to moderate decline today as well.
*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?”
Euro Debt & US debt ceiling
The Euro to US dollar is shifting direction on a daily basis as there are concerns over the debt in Europe and debt ceiling in the US.
Tomorrow, 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.
Barack Obama will need to reach a green light from House of Representatives by August 2nd to raise the debt ceiling otherwise the US may officially be proclaimed “default”. It’s very likely that the US will raise the debt ceiling, but in the mean time this situation brings uncertainty into the market.
Current Gold and Silver prices
The precious metals prices are currently traded down in the European markets:
The current gold price, short term futures (August 2011 delivery) is traded at $1,591.2 per t oz. with a $9.9 decrease or 0.62% as of 08:43*.
Current silver price, short term futures is at $39.250 per t oz – a $0.971 decline or 2.41%, as of 08:42*.
The current ratio of gold to silver prices is at 40.54.
Gold and silver prices Outlook:
Gold and silver prices shifted direction yesterday and fell; they are currently traded down. This might be a psychological effect of gold price passing the $1,600 mark and silver price passing the $40 mark. It could also have something to do with the good news from the real estate market in the US. Once the US will decide to raise the debt ceiling, and the European leaders will reach an agreement on the bailout of Greece, it may reduce some of the current uncertainty in the financial market and bring down gold and silver prices.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
15:00 – U.S. existing home sales
15:30 – EIA report about Crude oil inventories
15.00 – Ben Bernanke, Chairman of Fed, testifies
15:30 – EIA report about Natural gas storage
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.