Precious Metals resumed their downward trend as both precious metals declined on Monday. Many other commodities such as oil also tumbled down. China flash Manufacturing PMI was released tonight and showed the index rose to 49.5 but still means the manufacturing is contracting. Nonetheless may positively affect commodities rates. The ongoing decline of the Euro is also pulling down bullion rates. On today’s agenda: Flash Euro Area Manufacturing PMI, Canada’s Retails Sales, Bernanke’s Speech, Flash U.S. Manufacturing PMI and Japan’s Trade balance.
Gold declined on Monday by 0.34% to $1,577.4; Silver also decreased by 0.95% to $27.04. During July, gold fell by 1.67% and silver by 2.06%.
The ratio between the two precious metals rose on Monday to 58.33. During July the ratio edged up by 0.4% as gold slightly out-performed silver.
On Today’s Agenda
Flash Euro Area Manufacturing PMI: This report will provide an indicator to the economic progress of the Euro zone’s manufacturing conditions; this news, in turn may affect the Euro/USD and consequently also bullion rates;
Flash U.S. Manufacturing PMI: During June 2012 the ISM index declined to 49.7%, which means the manufacturing is contracting; this index might affect forex, crude oil and natural gas markets;
U.S. Treasuries / Gold & Silver– July
The U.S. 10-year Treasury yield continues to decline and reached 1.47% on Monday. The fall in LT securities yields may indicate the demand for “secure investments” continues to rise. During July there was a high and positive correlation between U.S. long term Treasury yield and bullion: the linear correlation between 10 year yields (percent change) and gold price reached 0.716; between 10 yr yield and silver was 0.612. The chart below suggests that if the LT U.S. treasury yield will continue to drop, it might indicate that metals rates will also follow and decrease.
The weak Euro is pulling down not only commodities prices but also other currencies such as Aussie dollar and CHF. If the Euro will continue at this direction it could adversely affect bullion. The ongoing fall in the U.S LT yields suggests traders are becoming more “risk averse”. This could also suggest bullion rates will suffer from this market sentiment. The upcoming reports regarding U.S Canada and EU could affect their respective currencies which in turn may affect precious metals rates. I still think the general direction of bullion rates will be downward unless there will be some breaking news.
For further reading: Gold & Silver | Weekly Outlook July 23-27