Gold & Silver – Daily Outlook August 25

Gold and silver sharply declined yesterday and thus erased all that they have gained in the past week and a half; CME raise margins again on gold trading by 27% – this news probably contributed to the falls in gold. Today, the US unemployment claims report will be published. But all eyes are set towards tomorrow and Bernanke’s speech in Jackson Hall. 

Gold and silver changed direction and fell yesterday: Gold price sharply fell on Wednesday by 5.59% to $1,757; silver also plummeted by 7.39% to $39.20. During August, gold increased by 7.7%, while silver declined by 2.3%.

CME raised again margins on gold trading by 27%

 CME (Chicago Mercantile Exchange), the world’s largest future market, decided to raise the maintenance margins requirements from $5,500 to $7,000 for trading gold on Wednesday, August 24th by 27% effective after the close of today’s business day on August 25th. The initial-margin requirement, or the minimum amount of cash that speculators must keep on deposit, will also incline to $9,450 per 100-ounce contract from $7,425.  This is the second time in August that CME raised margins during August: last time, CME raised gold futures trading margins requirements by 22% to $5,500 per contract on Thursday August 11th.

This news makes holding gold much less attractive and thus wards off many speculators from the precious metal market. This decision is likely to be one of the prime reasons for the recent sudden shift in gold prices to decline so sharply yesterday.

S&P500 / Gold & silver– August update

The S&P500 inclined again on Wednesday by 1.31%, and thus gained back some of the losses from last week. During August, S&P500 fell by 8.87%. The linear correlation of gold and silver with S&P500 index (daily per cent changes) was -0.478 (for gold) and -0.357* (for silver) as of August 24th. If the S&P500 will continue to rise, it may further push down gold and silver.

Gold and silver Outlook:

Gold and silver nearly erased in the past couple of days all the gains they had in August: Gold fell to its level back in August 15th and silver price decreased below its initial price level from the beginning of August. The CME margin hike probably was one of major contributors to push out speculators from holding gold.  The speculation around the economic progress of the US and how will it affect the lecture of Bernanke tomorrow in Jackson Hall is high and also may contribute to the changes in gold and silver. The major commodities prices, Forex and stock markets indexes are shifting direction as the financial markets are extremely volatile. With such extreme volatility adding a quantitative easing plan might not bring stability to the financial markets. The sharp fall in gold and silver prices might indicate that the market changed its bet that Bernanke won’t put the QE3 program on the table tomorrow, but the market has proven to be wrong in the past. Coming tomorrow, it will be much easier to see the direction of gold and silver, if the Federal Reserve chairman will provide a solid answer to his intentions about QE3. In the mean time, gold might lose ground again on the CME margin hike before resuming its slow ascent.

Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.