Gold changed direction and fell for second straight day to end last week in the red. Gold is still 6.8% above the price from the end of July. This shift was probably stemmed from the recent margin hike by CME along with the cool down in the financial markets. Today, the U.S. TIC long term purchases report will be published.
Let’s examine the precious metals market for today, August 15th:
Gold declined on Friday by 0.51% to $1,742; silver on the other hand bounced back and inclined by 1.15% to $39.11.
During August, gold price increased by 6.8%, but silver price fell by 2.5%.
The ratio between gold and silver fell in recent days as gold fell by a sharper rate than silver; the ratio reached on Friday, August 12th 44.55. During August gold has outperformed silver as the ratio inclined by 9.5%.
US TIC long term purchases – June
The Treasury International Capital report will be published today and present the main changes in the purchases and sales of US long term treasuries during June 2011.
Following the recent downgrade of US credit rating by S&P, the markets shifted direction and pushed funds to the US treasury bills and gold; it’s likely to see an additional slight increase in the net foreign purchases in the June report.
In the previous May report 2011, the net foreign purchases inclined to $23.6 billion; the increase in purchases was mainly driven by China. In the upcoming report there might continue to be a rise in purchases.
S&P500 / Gold & silver– August update
The S&P500 index rose again on Friday for the second straight day by 0.53%. This shift might have also cooled down some of the gains recorded in gold and silver. The correlation between bullion prices and S&P500 index isn’t reliable, but the changes in S&P500 index are inline with the changes in gold in recent months and to some extent even with changes in silver. During August the linear correlation of gold and S&P500 (daily per cent changes) was 0.45 (but due to very few samples, it wasn’t significant). This means, as the S&P500 sharply fell, gold inclined.
CME raised Gold margins by 22%
CME (Chicago Mercantile Exchange), the world’s largest future market, decided to raise the margins needed to trade gold by 22% on Thursday August 11th.
This means, Investors will need to put $7,425 to open a position on gold and maintain at least $5,500 to keep the position overnight. This decision is likely to be one of the prime reasons for the recent sudden shift in gold to decline in recent days.
Gold and silver Outlook:
Gold continues its slow paced descent from the sharp rises it recorded during last week; this is probably due to the effect of the recent margin hike by CME, and the decrease in the anxiety in the financial markets over the weekend. The recent US retail sales report showed some slight improvement that could signal that the US’s economy didn’t reach a full halt. On the other hand, the low growth rate of US GDP in Q2 2011 is likely to keep the uncertainly in the financial markets in regards to the recovery of the US. Therefore, I still think that gold and silver will eventually resume their rally, but with much less volatility than in the beginning of August, once the correction to the recent CME margin hike will be completed.
For further reading: Gold and silver prices outlook for August 2011
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.