Gold and Silver Prices – Daily Outlook for October 5

The prices gold and silver rose again for the second consecutive day. The rally was plausibly fueled by the recent appreciation of the Euro against the USD. The ECB left its interest rate unchanged at 0.75%. Mario Draghi stated (again) that ECB is ready to start its bond purchase program that will help Spain. This news may have contributed to the recent recovery of the Euro. U.S jobless claims rose by 4k to reach 367k. Currently, the prices of gold and silver are falling. On today’s agenda include: U.S. Non-Farm Payroll ((Update: 114k jobs added in September) and Canada’s Employment Report.

Here is a short outlook for precious metals for Friday, October 5th:

Precious Metals –October Update

On Thursday, Gold rose again by 0.94% to $1,796.5; Silver also increased by 1.18% to $35.1. During the week, gold rose by 1.27%; silver, by 1.52%.

As seen below, the chart presents the changes of normalized prices of precious metals in the last several weeks (normalized to 100 as of September 13th). During the past several weeks the prices of gold and silver have moved with an unclear trend.

The ratio between the two precious metals slipped on Thursday to 51.18. During October, the ratio nearly didn’t change as gold performed much like silver.

Minutes of FOMC Meeting

The minutes of the FOMC meeting, which was held back in September 13-14 came out yesterday. The report showed the FOMC is considering continuing with its current monetary expansion plan even if the U.S economy will recover:

“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

On Today’s Agenda

U.S. Non-Farm Payroll Report: in the recent report for August 2012, the labor market expanded by a lower than expected rate: the number of non-farm payroll employment rose by 96k; the U.S unemployment rate slipped to 8.1%; this report may affect not only the U.S dollar, but also commodities prices (see here my last review on the U.S employment report). The table below shows the relation among the prices of gold, silver and USD/YEN with the labor report. In the last report the prices of silver and gold hiked. My guess is that if the upcoming report will be positive and rise above the 120k mark, it is likely to pull up precious metals rates.

Canada’s Employment Report: In the recent employment report for August 2012, unemployment remained at 7.3%; the employment rose by 34k during the month. The upcoming report might affect the Canadian dollar and consequently the prices of bullion;

Currencies / Bullion Market – October Update

The Euro/ USD hiked on Thursday by 0.87% to 1.3017. During the month, the Euro/USD rose by 1.23%. Further, other currencies including Aussie dollar and Canadian dollar also appreciated yesterday against the USD by 0.24% and 0.73%, respectively. The correlation between gold and Euro and other “risk currencies” remains mid-strong and positive: during September/October, the linear correlation between the gold and EURO/USD was 0.66 (daily percent changes). If these currencies and the Euro will continue to rise against the USD, then they are likely to pull up gold and silver. Currently, the Euro/USD is trading up.

Current Gold and Silver Rates as of October 5th

Gold (November 2012 delivery) is traded at $1,794.9 per t oz. a $1.6 or 0.09% decrease as of 03:15*.

Silver (November 2012 delivery) is at $35.065 per t oz – a $0.036 or 0.1% decrease as of 03:15*.

(* GMT)

Daily Outlook for October 5th

The prices of precious metals rose on the second consecutive day. The recent minute of the FOMC meeting may have contributed to the rally of precious metals. The rise in the Euro and other “risk currencies” may have also helped pull up precious metals. The ongoing speculation around Spain’s next move could affect not only the Euro, but also bullion rates.  Today’s publication of the U.S. jobs report could positively affect the USD, stocks and commodities if the report will show growth in jobs of above 120k. Finally, if the Euro and Canadian dollar will rise, then they could also rally precious metals.  

U.S Employment Added by 114k Jobs in September | Gold and Silver Are Falling

The U.S. employment rose by a lower rate than many had anticipated during August: according to the latest U.S. employment report, which was published today, October 5th by the Bureau of Labor Statistics the number of non-farm employees grew by 114,000. The main sectors that expanded during September were in health care and in transportation and warehousing. The rate of unemployment declined to 7.8%. Gold and Silver prices are falling along with other commodities rates.

The chart below shows the revised figures of the number of non-farm employees added to the labor market during recent years (up to September 2012). The change in non-farm payroll was revised up for July from +141k to +181k; For August it was revised from +96k to +142k. The revised up figures for July and August suggest the employment situation in the U.S has improved in recent months, so the situation might not be so dire as many stated in the past.

As I have calculated in the past, the number of non-farm payroll employment needed to be added to the U.S labor market on an average monthly scale to keep up with the growth of the U.S. civilian work force is at least 107k (see red line in the chart below). This means that the recent gain in employment in the past several months were higher than this number. Further, this also means that the number of jobs added in September just barley surpassed this figure.

The rate of U.S. unemployment declined in September to 7.8%. The rate of unemployment is at its lowest level in recent years. The current unemployment rate is 2 percent points lower than its rate in November 2010. This positive news for the decline in rate of unemployment was something that could help the President Obama in his future debates before the November elections.

Furthermore, the number of unemployed persons (12.1 million) declined by nearly 456,000 during September compared to the previous month.

Following this news currently, the Euro to US dollar exchange rate is slightly rising along with the GBP/USD; crude oil price is falling while the U.S stock market indexes are rising; gold price is falling.

Now let’s breakdown how this news might affect the direction of commodities prices, including the prices of gold and crude oil:



Gold Market

As I have already showed in the recent gold and silver prices monthly report, historically, as the non-farm payrolls expand by at least the population growth rate (roughly 107k), gold price tended to decline; this correlation was mostly due to the effect this news has had on the speculation of further stimulus by the Fed. On the other hand, the relation of the precious metals market with other markets including commodities and stocks may also play a role in this relation. I.e. as the prices of commodities (oil) and stocks rise, gold and silver also tend to increase. The rise in the Euro/USD is also contributing to the recovery of bullion rates.

The table below presents the correlation between the news of the U.S. non-farm payroll employment developments and the daily changes in gold and silver prices on the day of the U.S. labor report publication. The table shows the negative relation between the U.S employment and daily changes of precious metals.

Crude Oil Market

The recent rise in the non-farm employment is slightly lower than some had anticipated but is still above the 100k mark which is a positive sign for the recovery of the U.S. economy from the perspective of the U.S’s work force. These numbers might be a seasonal effect but if they will continue it could help with the recovery of the markets as it signals an expected rise in U.S. demand for crude oil, and consequently may continue to pressure up crude oil prices during today’s trading

Weekly Review and Open Book Roundup

Investors’ worries over Spain once again controlled the week’s sentiment, with a continual ebb and flow depending on the news outcome. While Spain’s government is still holding out on an official request for financial aid from the E.U., ECB and IMF – collectively, the “Troika” – they have made inroads toward that day, with the presentation on Thursday of the 2013 budget and accompanying reforms. Markets viewed the budget in a positive light, and policy leaders praised the Rajoy government’s efforts for new necessary reforms as above and beyond the minimum requirements.

Spanish citizens were less enthused, however, and showed their displeasure with protests on the streets of Madrid. Spain’s key region, Catalonia, expressed their discontent to an even higher degree by announcing upcoming elections during which a secession vote will take place. Members of the Spanish government strongly voiced their opposition to Catalonia’s impending referendum and declared it unconstitutional. The region’s president Artur Mas’ has said that he would push for a referendum irrespective of its constitutionality.

Over the weekend, stress test results for Spain’s banks were released and while they were within the expected and acceptable limits, the government has said that they would not ask for the full amount. According to the results, some €59.3 billion is necessary for Spain’s banks to ride out the economic downtrend. As part of the bailout, the Troika had agreed to fund as much as €100 billion to the ailing banking sector, but the Spanish government has said that they will ask for only €40.0 billion.

Later today, Moody’s credit ratings agency is expected to announce their decision on Spanish debt, with a majority of analysts expecting a downgrade to below investment grade level. Spain’s borrowing costs have consistently been at high levels, though the stress test results helped to bring yields on 5-year debt down to 4.93%, but analysts don’t expect too much support in the near term unless and until the Spanish government officially seeks assistance which would trigger the ECB asset-purchase program.

The Social Trading Community at eToro

This week we look at OpenBook trader skanand9673 from India, a relatively new trader who is already included on the 3-month rankings board in position #27. As of this writing, the guru has 590 followers and 245 copiers. The high risk trader has a max drawdown of 9.8%, average exposure of 68.9% and profitable weeks ratio of 76.9% while realized equity is over 300% for the period and at 121.8% for the last month. With the exception of a brief and unprofitable foray into the EUR/USD pair early on in the trader’s history, the trader is now by and large a commodities trader, with 37.9% of the portfolio allocated to gold and 62.1% allocated to silver. The trader’s gold allocation has gained 6.7% while silver has earned 3.6%. Over the past three months, the trader has executed 222 trades, going long 98.5% of the time, no doubt taking into consideration the likely rise in commodity prices given the expected flood of liquidity from the world’s major central banks.

 
OpenBook trader aniindra7116 from Singapore is another high-risk commodities trader; like the previous guru, the trader is listed on the 3-month rankings board in position #42 with a max drawdown of 10.2%, average exposure of 14.9% and profitable weeks ratio of 76.9%. The trader’s realized equity was 6% for last week, 91.4% for last month more than 300% over the 3 and 6-month periods; out to 12-months the trader’s realized equity was reported at a still respectable 86.1%. The trader has had a 100% allocation in gold over the last quarter, which gained 26.6%; of the 107 trades executed, 83.2% were buys with an average hold time of 1½ days. As of this writing, the trader has 310 followers and 97 copiers, and is another good choice for those traders looking to diversify their own portfolios with established and successful commodities traders.

No Changes from Central Banks but Bank of Spain Surprises

Yesterday was the day that financial markets heard from several of the world’s major banks, with policy and interest rate decisions from the Bank of England and the European Central Bank, and early today the Bank of Japan weighed in as well. As forecasters had anticipated, all of the central banks stood pat, generally in wait-and-see mode to assess previous easing efforts, but not discounting the possibility of more easing ahead. Of the central banks, only the ECB was able to offer markets anything of value, saying that they were prepared to buy up Spanish debt as and when Spain’s government made an official request.


But it was a statement made by Spain’s central bank which was most notable but seemed to have slipped past investors’ focus. Yesterday, the governor of the Bank of Spain, Luis Maria Linde, dismissed the Spanish government’s budget which was presented late last week as too optimistic and not in line with independent forecasts. According to him, Spain’s economy is set to contract by 1.5% next year, not the 0.5% projection that the Spanish government has forecast. Linde believes that the government must consider still more measures so that deficit targets can be met, even beyond those proposals made by the Mariano Rajoy government.

Markets had priced in those decisions well ahead of the actual announcement and there was little movement in equities though the Euro edged higher. The EUR/USD is currently trading at 1.3006, and sentiment on OpenBook is bearish with 59% of traders selling against 41% buying. OpenBook guru NMarijus leads the trend with several open short positions; the guru has had several short positions hitting their respective TPs over the course of the past several days, with the most recent earning a 6% return. The guru has a large allocation in the EUR/USD pair, ranging between 96% and 100% over the past six months. As of now, the guru, who has 22,577 followers and 1,539 copiers, has realized equity over the last quarter was 5.5%, over the last six months 105.7% and for the last 12-months was 47.4%

Google Too Rich for your Blood? Not with Fractional Shares

One reason that investors tend to like mutual funds is because it allows them to buy a share of a stock that they’d like to own without having to fork over the whole amount at once. Let’s face it, the most popular and bluest of the blue chips are not cheap; take the two top tech stocks Apple and Google, for example, which is trading at $668 and $767, respectively. By the time an investor gets the money together to buy a share, well, if they’re lucky the price hasn’t gone up too much. But mutual funds also often have shares of stock that an investor might not be so interested in; here’s where fractional shares come in.


In the past, a corporation might be compelled to issue fractional shares as a result of a stock split or a dividend reimbursement and for the most part it was only an existing shareholder who could obtain the fractional shares. Now, fractional shares are being offered for trade by some online brokers, including eToro.

Why buy a fractional share? Why not? Analysts point out that one of the boons of fractional share purchases is that an investor can buy higher quality stocks which offer greater potential for profits. It allows an investor to buy a fraction of a single share, and the purchases are made in terms of dollars, not shares. That’s the way it’s done here at eToro, of course, with shares in several of the top corporations available, including Apple and Google, but also Microsoft, Facebook, Zynga, Yahoo and Amazon. The ability to invest in dollar terms and not shares means that an investor can put any amount they choose and it will be applied toward a full or fractional share of stock.

There is a key difference between an existing stockholder’s fractional share of stock and one that is obtained through a broker like eToro. For example, when you invest in a stock through eToro, you buy a CFD or Contract for Difference which reflects the ownership of that particular stock. eToro then is a counterpart to your CFD; you, as the investor, do no have the same rights that an actual shareholder would have as you don’t actually own the stock, only the CFD.

September Unemployment Rate Surprises while NFP Does Not

Earlier, the U.S. Bureau of Labor Statistics announced that September’s non-farms payroll figures rose by only 114,000, generally in line with the consensus forecast. Of note, the previously reported data of 96,000 new jobs in August was revised upward to 142,000

The unemployment rate unexpectedly fell to 7.8% from 8.1%, while the forecasts called for a rise to 8.2%. Analysts had doubted that today’s data would sufficiently be able to notch the rate anywhere but higher; the rate has been continuously above 8% since February 2009.

Earlier in the week, ADP had reported that 162,000 new private sector jobs had been added last month, much better than the expected 143,000 but significantly fewer than even August’s revised figures of 189,000 (from 201,000). As markets have too often seen, the ADP numbers have failed to coincide with the NFP data on quite a few occasions and market players have thus been ultra wary of making large moves ahead of the data.

One research analyst in New York remarked that the labor situation isn’t going anywhere fast and that the meager gains were barely sufficient to absorb new workers, and not nearly enough for the masses who are still hoping to return to the workforce.

Wall Street had closed yesterday higher, with all of the major indices gaining; the DJ30  gained 80.75 points, the SPX500 gained 10.41 points and the NASDAQ gained 14.23 points. Today’s data is already positively impacting Wall Street futures.

Today's oil price

$89.26 per barrel

Daily change of 2.45 ( 2.67% )

Oil Quote Updated Oct-05-12 12:30 AM

EUR / USD intraday: supported the upward trend line.

Pivot (level of cancellation): 1.2955

Our preference : Long positions above 1.2955 with targets at 1.303 and 1.3075. Alternative scenario : Below 1.2955 look for further downside with 1.2925 and 1.2875 as targets. Comment : the break above 1.2955 is a positive signal opened the way to 1.303.

GBP / USD intraday: Siding conflict to climb above 1.6125.

Pivot (level of cancellation): 1.6125

Our preference : Long positions above 1.6125 with targets at 1.6215 and 1.6245. Alternative scenario : Below 1.6125 look for further downside with 1.61 and 1.6065 as targets. Comment : the RSI Alnspahely the rise of a new stage calls.

USD / JPY intraday: Siding conflict to climb above 78.3.

Pivot (level of cancellation): 78.30

Our preference : Long positions above 78.3 with targets at 78.7 and 78.85. Alternative scenario : Below 78.3 look for further downside with 78.05 and 77.95 as targets. Comment : the RSI momentum sagging missing.

EUR / JPY intraday: supported the upward trend line.

Pivot (level cancellation): 101.75

Our preference : Long positions above 101.75 with targets at 102.55 and 102.85. Alternative scenario : Below 101.75 look for further downside with 101.2 and 100.95 as targets. suspension technician : technical indicators in daily trading mixed and calls caution.

GBP / JPY intraday: warned.

Pivot (level cancellation): 126.60

Our preference : Long positions above 126.6 with targets at 127.55 and 127.85. Alternative scenario : Below 126.6 look for further downside with 126.4 and 126.05 as targets. suspension technician : technical indicators in daily trading mixed and calls caution.

AUD / USD intraday: Siding conflict to climb above 1.023.

Pivot (level of cancellation): 1.0230

Our preference : Long positions above 1.023 with targets at 1.029 and 1.032. Alternative scenario : Below 1.023 look for further downside with 1.02 and 1.018 as targets. Comment : the RSI is supported bullish trend line .

Cac 40 Oct 12 in intraday: targeted 3445.

Pivot (level of cancellation): 3387.

Our preference : Long positions above 3387 with targets at 3445 and 3476. Alternative scenario : under the 3387 look for further downside with 3339 and 3300 Vkohdav. Comment : the RSI is mixed to bats ascent.

Dax Dec 12 in intraday: warned.

Pivot (level cancellation): 7265.

Our preference : Long positions above 7265 with targets at 7375 and 7480. Alternative scenario : Below 7265 look for further downside with 7210 and 7130 Vkohdav. suspension technician : RSI mixed and calls for t .