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Guest Commentary: Gold & Silver Daily Outlook 10.07.2011

Guest Commentary: Gold & Silver Daily Outlook 10.07.2011

2011-10-07 14:57:00
Lior Cohen, Energy Analyst for Trading NRG,
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Gold & Silver - Daily Outlook October 7

Gold and silver sharply inclined yesterday along with the rest of the markets. The ECB decided to keep interest rates unchanged. Currently, gold and silver are traded with moderate changes. Today, the U.S. Unemployment Rate & Non-farm Employment Report will be published and the Canada Employment Report.

Gold inclined on Thursday by 1.54% to $1,653.2; silver also sharply increased by 6.33% to $32.01. The ratio between gold and silver sharply tumbled on Thursday, October 6th to 51.65. During October, silver inclined by a larger rate than gold as the ratio decreased by 4.2%.

Guest_Commentary_Gold_Silver_Daily_Outlook_10.07.2011_body_Ratio_Gold_silver.png, Guest Commentary: Gold & Silver Daily Outlook 10.07.2011

On Today's Agenda:

U.S. Report Non-farm Employment Report: in the recent September report, the number of non-farm payroll employment remained unchanged during August; the last report didn’t show any improvement and may have helped gold and silver to increase during the first few days of September. There is used to be a negative correlation between the news on the U.S. labor report and the daily change on gold. The table below demonstrates the relation between these items as of 2011:

Guest_Commentary_Gold_Silver_Daily_Outlook_10.07.2011_body_U.png, Guest Commentary: Gold & Silver Daily Outlook 10.07.2011

The table above shows the dates of the announcements of the U.S. labor report, the change in employment (column A), and the daily percent change on the day the labor report was published for gold and silver prices (column C and D, respectively). Column B gives 1 for good news from the labor report (i.e. employment grew above 110k) and 0 for bad news (below 110k). The linear correlation of gold and labor report news and silver and labor report news show strong negative correlations.

These correlations aren't significant, but provide an indicator that the news on the U.S. labor force continues to be negatively correlated to gold and silver even in these uncertain times.

Therefore if the report will be positive and show an increase in employment it could curb the recent rally of gold. The recent PMI manufacturing report showed a slight improvement and may serve as an indictor to a positive result in the upcoming labor report.

ECB Kept Interest Rate Unchanged at 1.5%

Despite the high expectation that the European Central Bank will lower its basic interest rate, Jean-Claude Trichet, President of ECB, announced the ECB will keep the European interest rate unchanged at 1.5%; Jean-Claude Trichet said he expects the inflation rate to remain above the 2% target of ECB in the months to come.

USD/ Gold & Silver– October

The EURO/USD increase on Thursday by 0.67% to reach 1.3437; the AUD also followed and appreciated against the USD by 0.90%. Today, the U.S. labor report might affect not only forex traders, but also commodities traders especially if there will be unexpected news (good or bad). If major risky currencies will continue to appreciate against the USD, they may help push up gold and silver.

Gold and Silver Outlook:

Gold and silver sharply inclined yesterday, and they start to show a modest upward trend during October. The recent ECB rate decision may have helped with yesterday's gains in gold and silver pries, but the main news item will be the U.S. labor report that could stir up the financial markets especially if the U.S. labor report will be highly unexpected. The light optimism in the markets over the recent actions taken by EU policymakers to contain the debt crisis in Europe, and the speculation around the Fed's future steps will probably continue the positive sentiment in the financial markets. This sentiment might keep the rally of U.S. and European stock markets in the very short term and thus may curb the rally of gold and silver. But as long as the uncertainty in the markets remains high, gold and silver will thrive; so that it's likely that gold and silver will continue their moderate rally during October.

For further reading:

Gold and Silver Prices Monthly Outlook for October 2011

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.

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