Monthly recap on Gold prices & Silver prices for December 2010

The month of December ended the year with an upward trend for both spot gold price and silver prices. It’s worth mentioning that silver prices, more than Gold, showed a steep rise of nearly 9% as it passed the 30 usd/t. oz. mark and almost reaching 31 usd/t.oz.

Let’s see how these metals perform compare to one another, and compare to major currencies.

In the following table I present a summary of the correlations of daily percent changes among current gold prices, silver prices and major currencies, for the month of December:

Correlation among spot Gold price , Silver prices & Currencies December 2010

The table shows that there is a strong negative correlation between the USD/YEN and spot gold price, i.e. on roughly 60% of the time, when the USD/YEN had devaluated, spot gold price had risen and visa versa. Or in other words, when the Yen strengthen against the US dollar, the spot gold price increased in value, on 60% of the time, during the month of December. There is also a very strong correlation between current gold prices and the AUD/USD (0.72).

These correlations are also very similar to the correlations found among Silver prices and these major currencies.

Therefore, it’s no surprise to see a very strong correlation (0.93) between the daily percent changes of Silver prices and spot gold price for the month of December.

I have written a post on the tightening of Silver and Gold prices over the last couple of years, as they have shifted from being precious metals mainly serving their market applications (Gold mainly for jewelry and Silver for industry) to an investment safe heaven for investors and traders as the recession settled in the U.S. and then in Europe.

In the following price of gold chart, gold price is compared to major currencies including USD/YEN, AUD/USD and EURO/USD. They are all normalized to 100= 1/12/2010 for comparability. It shows the strong correlation of gold with these currencies, mainly USD/YEN and AUD/USD.

price of gold chart and major Currencies December 2010

In the final graph below you can see the spot gold price and silver prices fluctuations for the month of December, in which they are normalized to 100= 1/12/2010.

price of gold chart and silver prices chart December 2010

The graph shows the strong correlation I have referred to before. It also shows that silver prices out performed Gold and they were much more volatile than Gold prices. In fact, the daily percent change standard deviation for silver prices was 0.02 while for gold it was only 0.009, so in effect silver was nearly twice as volatile as gold. Nonetheless, since Silver is much cheaper than gold, we should expect it to fluctuate more vigorously than gold price.

In conclusion, the month of December showed a bit of a slow down in the upward trend of current gold prices, as they rose by 2.4% from beginning to end of the month, while silver prices showed a nearly 9% hike.

Furthermore, as expected, these metals are strongly correlated to major exchange rates such as Australian dollar and Japanese yen.

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