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Guest Commentary: Gold & Silver Make a Comeback, Will it Last? - May 26

Guest Commentary: Gold & Silver Make a Comeback, Will it Last? - May 26

2011-05-26 17:56:00
Lior Cohen, Energy Analyst for Trading NRG,
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Gold & Silver make a comeback, will it last? - May 26

The rapid rises in gold and mainly silver in the last few days start to resemble rises that were back in April. Will this recent rally continue in following the days to come or will it dissipate soon? Let's examine the precious metals market for today, May 26th:

Gold and silver– May

Gold inclined yesterday for the fourth straight business day by 0.30% as it reached 1,527$ - the highest price level since May 3rd.

Silver also inclined, even more than gold price by 4.19% to 37.642$ and thus it completed within seven business days a 12.4% rally.

During May, gold decreased by 1.8%, while silver declined by 22.5%.

The chart below of normalized silver and gold (May 2nd 2011=100) shows the rapid rises in silver during the last three of days despite the sharp fall at the beginning of the month.

guest_commentary_gold_and_silver_outlook_may_26_body_Gold_prices_forecast__silver_price_outlook_2011_MAY_26.png, Guest Commentary: Gold & Silver Make a Comeback, Will it Last? - May 26

As of Wednesday, May 25th the ratio between gold and silver declined to 40.59 – since the beginning of May this ratio inclined by 26.7%, but since May 17th this ratio fell by 8.2%. This means that silver started to outperform again gold in the last few days.

The chart below shows that this ratio had a rapid upward trend that has seem to change direction in the last few days.

guest_commentary_gold_and_silver_outlook_may_26_body_Gold_prices_forecast__silver_price_outlook_ratio_2011_MAY_26.png, Guest Commentary: Gold & Silver Make a Comeback, Will it Last? - May 26

Gold and silver and major currencies

During May, gold and silver were highly correlated with major currencies, mainly to USD/CAD, USD/YEN and AUD/USD.

The chart below shows the strong correlation of gold and silver (daily percent changes) to these exchange rates.

guest_commentary_gold_and_silver_outlook_may_26_body_Correlation_Gold__Silver_Prices_and_major_currencies_Dec_2010-_MAY_2011_26_MAY.png, Guest Commentary: Gold & Silver Make a Comeback, Will it Last? - May 26

Australia and Canada are among the leading exporters of gold and silver, and Japan is among the leading countries in importing gold and silver.

The rapid fall of these metals at the beginning of May seem to coincide with the strengthening of the US dollar compared to these above mentioned currencies.

During the recent rally of silver and gold, between May 17th and May 25th as they inclined by 12.39% and 3.23%, respectively; the USD/CAD exchange rate also inclined by 0.53%; AUD/USD fell by 1.36%; and USD/YEN rose by 0.68%. These figures don't coincide with the correlations listed above, except for the USD/Yen exchange rate and the upward trend of gold and silver in recent days.

This might suggest that gold and silver prices' rally in the last few days was stem, in part, by the recent rally of US dollar compared to Yen.

Goldman Sachs and JP Morgan bullish on commodities

According to Bloomberg, Goldman Sachs and JP Morgan are go long on major commodities including crude oil and gold.

These recommendations are probably among the reasons for gold and silver prices' rally during the week.

Gold and silver Outlook:

Gold and silver are traded up in the last few days despite the rapid falls they had at the beginning of the month.

The renewed interest of major investments banks such as Goldman Sachs and JP Morgan in commodities including crude oil and gold might be among the main reasons for the recent rally in gold and silver in the last several days. This affect might continue to drive gold and silver price in during the next days, however, I still think, this rally won't last long unless there will be news coming from the US that will devalue its currency again, a plan like the QE1 and QE2 will get it done and rekindle traders and investors enthusiasm over gold and silver.

Currently, the concerns over the debt crisis in Europe including Greece and Portugal give the US dollar some wind and keep it high; as a result, gold and silver are likely to remain around the 1,500$-1520$ and 34$-37$, respectively in the following days.

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

Today

13.30 – Department of Labor report - US unemployment claims

13:30– US GDP 1Q 2011report

15.30 – EIA report about Natural gas storage

Tomorrow

09.00 – Monetary developments in the Euro area

15.00 –US pending home sales

For further reading:Gold and silver prices outlook May 2011 – what’s next for gold & silver?

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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