Gold and silver continued their downward trend yesterday and thus they have declined for the third consecutive day. Mario Draghi, ECB President, contributed to the bearish market sentiment as he, much like the IMF, stated the economic outlook for the Euro-zone is grim. Will this downward trend of precious metals and Euro continue? On today's agenda: European Council Meeting, China New Loans, U.S 10 Year Bond Auction, Minutes of BOJ meeting, Australia Employment Report, and SNB Chairman Jordan Speaks.
On Today's Agenda
European Council Meeting: In the European Council Meeting the EU ministers of finance will meet and talk about the recent monetary developments in Europe;
China New Loans: This report will report the recent changes in China's new loans given during the recent month. According to the last report, the total loans rose as the People Bank of China BOC had cut the interest rate and eased the restrictions on commercial banks regarding new loans; this report is another indicator for the economic progress of China;
Australia Employment Report: in August the rate of unemployment edged down to 5.1%; the number of employed (seasonally adjusted) slightly fell by 8,800 people; the number of unemployed decreased by 10,600 during August compared with July‘s numbers. This report could affect the Australian dollar;
Currencies / Bullion Market – October Update
The Euro/ USD also declined again on Tuesday by 0.64% to 1.2885. On the other hand, several currencies including AUD appreciated yesterday against the USD. The correlation between gold and Euro remains mid-strong and positive: during September-October, the linear correlation between the gold and EURO/USD reached 0.61 (daily percent changes); the linear correlation between the gold and USD/Canadian dollar was -0.51 (daily percent changes). Following yesterday's mixed trend in the foreign exchange markets in which the Euro depreciated while the AUD and Canadian dollar appreciated against the USD, this could contributed to the little movement of precious metals prices. The chart bellows shows the linear correlations among silver, gold and the main exchange rates. If the Euro and other risk currencies will further fall, they are likely to also pull down gold and silver.
The decline of precious metals coincided with the recent fall of the Euro/USD. The ongoing bearish market sentiment towards the Euro might continue, which, in turn, is likely to also pull down precious metals prices. Today's European council meeting might further pull down the Euro, if the members of the Council won't come up with positive news regarding the future growth of Europe. The uncertainty around the bailout of Spain and Greece's debt crisis is likely to adversely affect the Euro and other "risk currencies". Finally, today's publication of China new loans might adversely affect the commodities prices if the report will show little growth.
For further reading: Gold And Silver Outlook October 8-12
By: Lior Cohen, M.A. in Economics, Commodities Analyst and Blogger at Trading NRG
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