Guest Commentary: Gold & Silver October 10.18.2012
The prices of gold and silver continued to trade up for the second consecutive business days. Their recent rally coincided with the recovery of the Euro and other "risk currencies" such as the Aussie dollar and Canadian dollar. U.S housing starts and building permits hiked during September and thus may have had an adverse effect on the prices of precious metals. In Asia, China's GDP expanded by 7.4% during the third quarter of 2012, which is close to expectations. Nonetheless, this new may adversely affect commodities prices. Today the EU Economic Summit will start and could have a strong effect on the Euro and commodities prices. Other items on today's agenda: GB Retails Sales, Spanish 10 Year Bond Auction, Philly Fed Manufacturing Index and U.S. Jobless Claims.
The linear correlation of the two precious metals daily percent changes is still strong and robust, as indicated in the chart below. During October the linear correlation of their daily percent changes reached the highest level since May 2012, at 0.905, which means the two metals' relation has tighten in recent weeks.
On Today's Agenda
EU Economic Summit: there will be a two day EU economic Summit, in which the European leaders will talk about the recent financial developments related to the EU debt crisis. In the Summit the members may talk about Spain's debt crisis. Perhaps Spain will make its official request for aid in this Summit. If there will be big headlines from this Summit it may have some effect on the financial markets;
Philly Fed Manufacturing Index: In the previous September survey, the growth rate rose from -7.1 in August to -1.9 in September. If the index will remain negative it may adversely affect not only U.S Dollar but also American stock indexes, and commodities;
U.S. Jobless Claims: in last week’s report the jobless claims fell by 30k to 339,000; this upcoming weekly update may affect the U.S dollar and consequently commodities;
Currencies / Bullion Market – October Update
The Euro/ USD rose again on Wednesday by 0.5% to 1.3118. Further, several currencies including Aussie dollar also sharply appreciated yesterday against the USD. The correlation between gold and Euro remains mid-strong and positive: during recent weeks, the linear correlation between the gold and EURO/USD was 0.49 (daily percent changes); the linear correlation between the gold and AUD/USD was 0.52 (daily percent changes). The recent rise of the Euro and Aussie dollar against the USD may have positively affected precious metals prices in recent days. Thus, if the Euro and other risk currencies will continue to rally, they are likely to pull up bullion.
The prices of precious metals rose for the second consecutive business day. The recent appreciation of the Euro, Aussie dollar and Canadian dollar has likely to pull up the price of gold and silver. If this trend will continue today, it is likely to further positively affect precious metals. To that end the EU Economic Summit might affect the forex market mainly if the Summit will result in big headlines related to Spain and Greece. Finally, today's publication of U.S jobless claims and Philly Fed manufacturing survey could affect the USD and bullion prices. If the U.S will show signs of progress, then bullion may fall.
For further reading: Will Gold Continue to Dwindle?
By: Lior Cohen, M.A. in Economics, Commodities Analyst and Blogger at Trading NRG
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