The prices of silver and gold changed direction and bounced back yesterday. This rally coincided with the recent rally of risk related currencies such the Euro, Aussie dollar and Canadian dollar against USD. Today, the FOMC will conclude its two day deliberations and come out with its decision on monetary policy. Will the Fed surprise again? Besides the FOMC statement, on today’s agenda: First U.S GDP 4Q 2012 Estimate, KOF Economic Barometer, Flash Spanish GDP Q4 2012, Italian 10 Year Bond Auction, ADP estimate of U.S. non-farm payroll.
On Tuesday, the price of gold rose by 0.48% to $1,660.8; Silver price also increased by 1.31% to $31.16. During the month, gold decreased by 0.84%; silver rose by 3.27%.
The gold and silver futures volumes of trade have increased in recent days: by Tuesday the gold and silver volume reached 281 thousand and 35 thousand, respectively. The gold volume was higher than the volume on the same day last week. If the volume will remain high today, this could suggest the precious metals market is heating up again. The chart below shows the volume of trading gold and silver futures in the CME during the month.
On Today’s Agenda
FOMC Meeting: The FOMC will announce its decision on its monetary policy and interest rate; in December’s FOMC meeting, the FOMC expanded its QE3 program so that the Fed is currently purchasing $40 billion worth of mortgage backed sectaries and $45 billion worth of long term secretaries. The current expectations are that the Fed will maintain its current policy. The currently low inflation rate and slow recovery in the jobs market is likely to keep this expanding monetary policy in the near future. At the same the Fed’s discussion around its exit strategy could raise the speculations in the precious metals markets. If the Fed will refer to this exit plan, it could pull down precious metals prices. The table below shows the decisions of the FOMC in 2012 and the precious metals market reaction on the day of the announcement and the following day.
First U.S GDP 4Q 2012 Estimate: In the previous estimate the U.S GDP during the third quarter expanded by 2.7%; in the 2Q2012 the GDP growth rate reached 1.7% (annual rate). This shows a rise in the growth rate for the US’s GDP. If there will be a sharp change in the growth rate from Q2 to Q3 this could affect not only the US dollar but also precious metals.
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