Guest Commentary: Gold Daily Outlook
The bullion market continues to heat up even after the House raised the US debt ceiling; this news strengthened the USD against other currencies, but the market seems to raise the ante and continue to bet on gold and silver. Today, the U.S. non-manufacturing PMI report will be published.
Let's examine the precious metals market for today, August 3rd:
Gold rose yesterday by 1.41% and reached $1,644. Silver also inclined by 1.99% to $40.09. The chart below shows the normalized gold and silver (July 12th 2011=100). As seen below, during the past three weeks silver has substantially outperformed gold, but in the last couple of days seem to have outperformed silver.
US Debt Rating – What's Up Ahead?
Following the decision to raise US debt ceiling by $2.1 trillion, the aftermath of this decision is upon the US; this includes the future rating of the US economy. The current situation is that Moody's and Fitch already said they won't downgrade the triple A treasury debt rating of the U.S, but Standard and Poor's didn’t clearly stated its position. There are high speculations on this matter, and if eventually Standard and Poor's will downgrade the US's rating it could further weaken the US dollar and strengthen gold and silver. In the meantime, FT reported that a Chinese rating agency downgraded the US's credit rating from A- plus to A. If this news will have any impact on China's acquisition of US treasury bonds, this might further weaken the demand for it and consequently also further strengthen gold and silver.
USD / Gold & Silver– August Update
The Euro/USD exchange rate declined yesterday by 0.33%; the appreciation of USD might be stem, in part, from the news of US raise debt ceiling, but this news affects gold and silver in a different direction: in the chart below are the linear correlations of USD with gold and silver (daily percent changes) during each month of 2011; the chart shows that every month in 2011 excluding July, gold and silver were positively correlated with Euro/USD exchange rate. But during July the correlation of gold with Euro/USD was low and negative; this might suggest that the changes in this exchange rate during the month didn't affect gold and silver as these changes did in the past. Furthermore, this finding implies that even if the USD will further appreciate, gold and silver might further rise as they are driven by other forces than the changes in USD.
Gold and Silver Outlook:
Gold and silver continues its rally that had stared back in July despite the news from the US of raising the debt ceiling; this might be driven from the slowdown in the US economy and the speculation around downgrading the US's debt rating. These speculations are translated into gains in demand for gold and silver in the near future and consequently push gold and silver further up.
For further reading: Weekly outlook for August 1-5
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.
By: Lior Cohen, Energy Analyst for Trading NRG
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.