Gold bounced back from the falls it had in the past couple of business days. Gold is still 7.8% above the price from the end of July. Today, the U.S. Building permits and Housing starts reports will be published and the European Union GDP second quarter report.
Gold and silver–August
Gold inclined on Monday by 0.88% to $1,758; silver also inclined by 0.57% to $39.34. During August, gold increased by 7.8%, but silver fell by 1.9%.
The chart below shows the normalized gold and silver (July 29th 2011=100). Gold bounced back from the decline it had in recent days, while silver continue to demonstrate no clear direction in the past few days.
The correlation between silver and gold has also declined during August and is currently at its lowest rate in 2011.
Main Europe’s economy’s GDP 2Q2011
Following the very disappointing report showing that Germany’s economy grew by only 0.1% in the second quarter 2011, the Euro Area GDP is likely to show similar disappointing report. This news is likely to raise the questions of the recent monetary policy of the ECB in particular the raises of the interest rates during 2011. This news might also further push funds towards gold and silver as the economic progress of Europe had reached a halt in the second quarter.
US Housing Market – July update
Today the building permits rate and housing starts report will be published that will give some indication of the economic progress of the US housing market. In regards to US housing starts, historically it was correlated with gold price – as housing starts rise gold price usually declined the following day (even when controlling to the US dollar effect); in the last report the adjusted annual rate reached 629,000 in June 2011, which is 14.6% above the May rate of 549,000.
S&P500 / Gold & silver prices – August update
The S&P500 index rose for the third straight day, yesterday by 2.18%. This rally might have cooled down some of the gains recorded in gold and silver. The correlation between bullion prices and S&P500 isn’t reliable, but during August the linear correlation of gold and S&P500 (daily per cent changes) was 0.499 (but due to very few samples, it wasn’t significant). This means, as the S&P500 decreased, gold inclined. If the S&P500 will continue to rise, it may curb some of the gains in gold.
Oil / gold & silver– August
In the past, oil prices and gold and silver used to have a strong positive correlation. But in the past couple of months, the linear correlation between these commodities was very low; this is in line with the sharp rally of gold and silver during July and August, while oil remained nearly unchanged during July and fell sharply at the beginning of August.
Gold and silver Outlook:
Gold and silver seem to have resumed their ascend that reached a halt in the past few days, mainly due to the margin hike by CME on trading gold at the end of last week. The US housing market might continue to show an improvement if the US building permits and US housing starts will rise in the upcoming reports; this news might curb some of the concerns over the economic slowdown in the US and the rally of gold and silver. The major stock markets have also shown signs of recovery to curb the increases in gold and silver. Nevertheless, I still think that gold and silver will continue their rally, but with much less volatility than in the beginning of August.
For further reading: Gold and silver prices outlook for August 2011
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.