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Guest Commentary: Gold & Silver - Daily Outlook 05.23.2011

Guest Commentary: Gold & Silver - Daily Outlook 05.23.2011

2011-05-23 14:55:00
Lior Cohen, Energy Analyst for Trading NRG,
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Gold & Silver - Daily Outlook 23 May

Gold and silver finished last week with rises, only after they shifted directions throughout most of the week. Currently gold and silver are traded with moderate changes. Let's examine the news related to these precious metals for today, May 23rd:

Gold and Silver– May

During May gold decreased by 3.1%, while silver declined by 27.8%.

The chart below of normalized silver and gold (100= May 2nd) shows the downward trend of gold and silver prices at the first few days of May.

Guest_Commentary_Gold_Silver_-_Daily_Outlook_05.23.2011_body_Gold_prices_forecast__silver_price_outlook_2011_MAY_23.png, Guest Commentary: Gold & Silver - Daily Outlook 05.23.2011

As of Friday, May 20th the ratio between gold and silver inclined to 43. The ratio could be interpreted as one troy ounce (31.1 gram) of gold is worth 43 troy ounces of silver.

Guest_Commentary_Gold_Silver_-_Daily_Outlook_05.23.2011_body_Gold_prices_forecast__silver_price_outlook_ratio_2011_MAY_23.png, Guest Commentary: Gold & Silver - Daily Outlook 05.23.2011

AUD/USD and Gold and Silver

During May, gold and silver were very highly correlated with AUD/USD and reached similar levels as in January 2011, when gold fell, back then, by 6.2% and silver by 9.5%.

The chart below shows the strong correlation of gold and silver (daily percent changes) with AUD/USD during May.

Guest_Commentary_Gold_Silver_-_Daily_Outlook_05.23.2011_body_Correlation_Gold__Silver_Prices_and_AUDUSD_currency_Dec_2010-_MAY_2011_23_MAY.png, Guest Commentary: Gold & Silver - Daily Outlook 05.23.2011

Australia is among the leading countries in producing gold, and during the last quarter of 2010, Australia was the leading country in gold production growth.

That being said, despite the rapid fall in AUD/USD today, gold didn't react to this fall and moderately inclined.

The S&P500 Gold and Silver during May

There is also very strong linear correlation between the S&P500 daily percent changes and gold and silver as presented in the chart below:

Guest_Commentary_Gold_Silver_-_Daily_Outlook_05.23.2011_body_Correlation_Gold__Silver_Prices_and_SNP500_Dec_2010-_MAY_2011_23_MAY.png, Guest Commentary: Gold & Silver - Daily Outlook 05.23.2011

The correlation between S&P500 and gold and silver didn't reach such high correlation in previous months, and may indicate a shift in direction of the relationship between these indexes.

European Debt Crisis

Following the recent news from Portugal about its debt crisis, in which Portugal is to receive from IMF and European Union 111 billion USD, the government is determined to slash its budget and make reforms in the country. This news puts more pressure on Europe and raises its level of risk; usually in times like theses, when the uncertainty rises, major commodities, such as gold, strive.

China

People bank of China raised its reserve requirements ratio of commercial banks in China by 0.5 percent points to 21%. This move came after, the Chinese inflation continue to rise during April, in part, due to the high volume loans the commercial banks hand out. This recent raise might curb the number of loans given and eventually might slow down the annual economic growth of China. If this will be the case, it may curb China's demand for gold and silver.

See here for the recent news update from the Middle East.

Gold and Silver Outlook & Analysis:

Gold and silver inclined on the last day of last week, probably due to the concerns over Portugal's debt.

Major commodities including gold and silver continue to fluctuate with no clear direction in last couple of weeks. The Market is probably waiting for news from the US in regards to the Fed's next move in stimulating the US economy as the quantitative plan is about to end in June.

The US economy continues to pose concerns including the high public debt of over 14.32 trillion US dollar, which is nearly 98% of US's GDP in 2010; the slow recovery of US economy.

In the mean time, I still speculate that gold and silver will fluctuate around their current price level of 1,500$ and 35$, respectively; as they did in the past couple of weeks.

Here is a reminder of the top events and reports that are planed for today (all times GMT):

Today

06.00 – Bank of Japan monthly report

Tomorrow

23.50 – Report of Japanese Trade balance (for April)

For further reading: Weekly outlook for May 23-27

By: Lior Cohen, Energy Analyst for Trading NRG

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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