The FOMC ended their last meeting of the year with the decision to taper QE3 by $10 billion. This means, the asset purchase program declined to $75 billion per month starting next month. The FOMC reduced $5 billion from each type of assets: mortgage backed securities and long term treasuries. The gold and silver market didn’t have much of a reaction as both precious metals slightly rose. But currently both metals are trading sharply down. Albeit the FOMC announced the tapering of QE3, it has also made additional announced that may have reduced this decision’s effect on the markets including: revise up the outlook for U.S economy in 2014, no guideline for the next tapering, and could keep rates low until late 2015. On the other hand, Bernanke voiced his concern about the inflation; future moderate tapering will continue next year and may end QE3 by late 2014. On today’s agenda: Philly Fed Manufacturing Index, Euro Area Current Account, U.S. Jobless Claims, and U.S. Existing Home Sales.
Here is a short overview for precious metals for Thursday, December 19th:
Gold and Silver – December Review
On Wednesday, gold slightly rose by 0.4% to $1,235.7; Silver, by 1.12% to $20.02. During December, gold declined by 1.18%; silver inched up by 0.1%. In the chart below are the normalized prices of bullion for 2013 (normalized to 100 as of November 29th). The prices of gold and silver have moved in an unclear trend during the month so far.
The ratio between the two precious metals slipped on Wednesday to 61.73. During December, the ratio slightly slipped by 1.28% as silver has moderately out-performed gold.
The gold and silver futures volumes of trade have slightly increased and reached on Wednesday 166 thousand and 48 thousand, respectively. The volume of trade is still low and is likely to pick up today following the FOMC’s decision.
The table below shows the changes in precious metals prices during the day the FOMC makes its announcement and the following day from the past couple of years.
This decision is likely to cut down the prices of gold and silver as this decision was a bit surprising. The FOMC kept the timing of tapering QE3 close to the vest. This recent decision is likely to further pull down gold and silver, at least in the short term.
On Today’s Agenda
Euro Area Current Account: In the previous report, the gap in value between imported and exported goods, services, income flows, and unilateral transfers shrunk to 13.7 billion Euros. This report could also indicate the recent developments in the progress of the EU economy;
Great Britain Retail Sales: In the last month, retail sales in Great Britain fell by 0.7%; this report could affect the British pound;
U.S. Jobless Claims Weekly Report: This weekly update will pertain to the changes in the initial jobless claims for the week ending on December 14th; in the recent report the jobless claims sharply rose by 68k to reach 368k; the next weekly report may affect the U.S dollar and consequently commodities and equities markets;
U.S. Existing Home Sales: This report will show the shifts in U.S. existing home sales during November 2013; in the last report regarding October 2013 the number of homes sold fell to a seasonally adjusted annual rate of 5.12 million houses; if this trend persists, it might adversely affect the U.S dollar;
Philly Fed Manufacturing Index: This monthly survey estimates the growth of the US manufacturing sectors. In the last survey regarding November, the growth rate fell from +19.8 in October to +6.5 in November. If the index continues to fall, it may adversely affect not only U.S Dollar but also U.S equity markets and commodities (the recent Philly Fed review);
Currencies / Precious Metals Correlations – December Update
On Wednesday, the Eur/USD currency pair fell by 0.6% to 1.3686. During December, the Eur/USD increased by 0.7%. Further, other currencies such as the Canadian dollar also depreciated yesterday against the U.S dollar by 1.58%. The correlations among gold, silver and Euro have further weakened again in recent weeks, e.g. the correlation between the Euro/USD and gold price is only 0.06 during November-December – its lowest level since mid-April. This could suggest the developments of the gold and silver prices have little to do with the changes in the forex market.
Here is a reminder of the main events and publications that are scheduled for today and tomorrow (all times GMT):
09:00 – Euro Area Current Account
09:30 – Great Britain Retail Sales
13:30 – U.S. Jobless Claims
15:00 – U.S. Existing Home Sales
15:00 – Philly Fed Manufacturing Index
09:30 – GB Current Account
13:30 – Canada Core CPI
13:30 – Canada Core Retail Sales
13:30 – Final U.S GDP 3Q 2013 Estimate
Tentative – Japan’s monetary policy meeting and press conference
For further reading: