The bullion market continues to heat up even after the House raised the US debt ceiling; this news strengthened the USD against other currencies, but the market seems to raise the ante and continue to bet on gold and silver. Today, the U.S. non-manufacturing PMI report will be published.
Let’s examine the precious metals market for today, August 3rd:
Gold rose yesterday by 1.41% and reached $1,644. Silver also inclined by 1.99% to $40.09.
The chart below shows the normalized gold and silver (July 12th 2011=100). As seen below, during the past three weeks silver has substantially outperformed gold, but in the last couple of days seem to have outperformed silver.
US rating – what’s up ahead?
Following the decision to raise US debt ceiling by $2.1 trillion, the aftermath of this decision is upon the US; this includes the future rating of the US economy. The current situation is that Moody’s and Fitch already said they won’t downgrade the triple A treasury debt rating of the U.S, but Standard and Poor’s didn’t clearly stated its position. There are high speculations on this matter, and if eventually Standard and Poor’s will downgrade the US’s rating it could further weaken the US dollar and strengthen gold and silver. In the meantime, FT reported that a Chinese rating agency downgraded the US’s credit rating from A- plus to A. If this news will have any impact on China’s acquisition of US treasury bonds, this might further weaken the demand for it and consequently also further strengthen gold and silver.
Gold and silver Outlook:
Gold and silver continues its rally that had stared back in July despite the news from the US of raising the debt ceiling; this might be driven from the slowdown in the US economy and the speculation around downgrading the US’s debt rating. These speculations are translated into gains in demand for gold and silver in the near future and consequently push gold and silver further up.
For further reading: Weekly outlook for August 1-5
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.