Gold and silver took a real hit to the chin yesterday as they have plummeted to their monthly low. On the other hand most of the major commodities and currencies (AUD, CAD) have also suffered sharp falls yesterday. It’s hard to attribute all of yesterday’s falls in commodities prices to the recent FOMC decision, but this decision may have triggered this avalanche in the Forex, commodities, US Treasuries and US stock markets.
Gold sharply declined on Thursday by 3.67% to $1,741; silver plummeted by 9.61% to $36.58. During September, gold declined by 4.9% and silver fell by 12.4%.
U.S. Treasuries / Gold– September Update
The US 10-year Treasury yields sharply fell 0.16 per cent points to 1.72% – their lowest level in 2011; during September they have fallen by 0.51 per cent points. The recent FOMC decision is likely to keep this downward trend and further reduce the LT US securities yields as traders dump other investments and run towards LT US securities before the Fed’s new plan will further decrease their yields. There was a negative correlation between the US long term Treasury yields and gold daily per cent changes in the last few months, but this pattern has shifted as seen in the chart below. It seems that many traders have started to shift from holding gold towards increasing their holding in LT US securities.
USD/ Gold & Silver– September Update
The EURO/USD along with other exchange rates such as AUD/USD sharply fell yesterday; the EURO/USD declined by 0.80% to 1.3464, the AUD/USD fell by 3% and USD/CAD rose by 2%. The Federal Reserve ‘s announcement might have triggered the recent strengthening of USD. If the USD will continue to appreciate against major currencies such as the Euro, AUD and CAD, as it did throughout September and especially in the past couple of days, it further pressure gold and silver to trade down.
Gold and Silver Outlook:
Gold and silver have sharply fallen yesterday and they may continue their decline today – the August upward trend won’t repeat itself in September. The FOMC plan wasn’t received well by many traders as it may have triggered the recent dive in the financial markets. The shift in the markets might accompany with an ongoing strengthening of USD against major currencies, a decrease in long term securities yields and a decline in commodities prices. That being said, during the rest of September I still speculate that gold will slowly recover from its sharp falls, but will most likely finish the month below their initial price levels from the beginning of the month. Silver that usually is more unstable may remain even further below its initial price level.
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.
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