Gold and silver prices are currently traded with rises after they had (especially silver prices) a very bearish week. Will this shift in trend continue throughout the week? Let’s examine the precious metal market for the first day of the week, May 9th:
Gold and silver prices – May
During May, silver price decreased by 27.4%, while gold price decreased by 4.2%. Notice in the chart below, in normalized terms (100= January 1st) silver prices reached very high levels during March and April compared to gold prices. This inflated price level came down during last week.
Gold dropped below the $1,500 mark and reached on Friday $1,491, an increase of 0.69%.
Silver price kept its free-fall and reached on Friday $35.29 a drop of 2.63%.
The gold to silver ratio: As of Friday, May 6th the ratio between gold and silver prices rose to above the 42 mark and reached 42.27 – this is the highest ratio level since February 25th, 2011 . The ratio could be interpreted as one troy ounce (31.1 gram) of gold is worth 42.27 troy ounces of silver.
The gold to silver ratio rose very rapidly by over 32% during May. This shift in trend is the first one in 2011.
The US dollar connection
The drastic decline of silver and gold prices during last week was related, in part, to the appreciation of the US dollar compared to major currencies including the Australian dollar and Yen.
The chart below shows that during May (up to May 6th) the Australian dollar and Japanese Yen have a very strong correlation with gold and silver prices.
The Australian dollar and Yen are two currencies that are considered a safe heaven against the depreciation of the US dollar. As these currencies were devalued very rapidly against the US dollar, so did precious metals.
Granted, we only have very few samples in May, and as such the correlations are likely to fluctuate during the month and are probably not significant, however this gives some insight into the strong connection of major exchange rates had during last week with the changes in gold and silver prices.
Speculation around commodities
Bloomberg reports that major investment banks including Goldman Sachs and JP Morgan might consider going long again on gold.
Goldman Sachs head of commodity research thinks that following the pullback in major commodities prices during last week, this may create an opportunity for commodities to make a comeback by the second half of 2011.
Update from Middle East
Most of the Libyan fighting continues to occur in the rebel-held city of Misrata where Gaddafi’s forces continue to strike the rebels.
The effect of the increase in Silver Margins
CME Group raised the margin requirements on silver trading at the beginning of last week. This was the second margin increase within a week’s time. Under the recent terms the minimum amount needed to deposit will be $16,200 per contract, an increase of 11.6% from the previous amount needed. This announcement is probably one of the reasons for the rapid falls in silver prices during last week.
Current Gold and Silver prices
European markets show major precious metals prices are traded at rises:
The current gold price, short term futures (June 2011 delivery) is traded at 1,505.7 USD / t oz. a $14.1 increase or 0.95%, as of 10.28*.
Current silver price, short term futures is at 36.675 USD / t oz – a 1.388 gain or 3.93%, as of 10.28*.
The current ratio of gold to silver prices is at 41.03
Gold and silver prices Outlook and Analysis:
The free-fall of silver prices leveled out today and this is the first day in May, in which silver prices are rising. The effect the CME margin rise in silver prices seems to be completed. The effect from last week’s increase in US dollar against major currencies also seems to be completed this for now. Therefore, I think silver prices, much like major other commodities, are likely to bounce back from last week’s rapid pullback. This comeback, however won’t last a long time and silver prices are likely to moderately rise in the upcoming week.
Gold didn’t suffer from a downfall as silver prices did, during last week. Nonetheless, Ithink gold much like silver is likely to continue rising.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
People Bank of China’s report on New Loans
Chinese Trade Balance report
3.00 – Chinese CPI
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