Gold and silver had positive weeks this week, though they did not move too much in one direction or another. Gold made gains of about $40 earlier in the week, but since then the yellow metal has remained essentially stagnant. As of now, the world marketplace has a lot of data and news stories to digest, including the rising short-term interest rates in China as well as the increasingly heated housing market.
This week also saw many of the economic reports which were delayed by the shutdown be released to the public. The first of these reports was September’s employment data, which came in weaker than expected and became a bullish factor for gold and silver almost immediately. As we look ahead to next week however, most eyes will be on China and how their current interest rate situation has developed over the weekend. After precious metals’ initial gains earlier this week, the rest of the week has been fairly quiet for both gold and silver as profit-taking abounds.
Piles of Data From China
This week saw investor focus fixated on China as economic reports as well as developing stories were making headlines every day. First, a cause for concern for investors was made known once a report about the rapidly rising short-term interest rates in China was released. With interest rates rising at rapid rates, Chinese monetary officials are going to have to take some type of preventative, cautionary action. Many are beginning to believe that Chinese officials will tighten monetary policy, a scenario that would undoubtedly be bearish for precious metals as it will likely mean a decrease in the overall demand from the world’s second largest economy. Since China is such a huge consumer of precious metals, a decline in demand from the country would not bode well for precious metals spot prices.
In other news out of China, its manufacturing PMI grew by about .7 from September to October, indicating to many that the Chinese economy is on the right track. Though this was a bullish factor for metals, the rising interest rates and overheating housing market in China offset it.
US Dollar in the Dumps
Since the onset of the partial government shutdown at the beginning of the month, the US Dollar has been steadily declining in value and then hovering around its daily and weekly lows. Now, as the dollar sits somewhere in the neighborhood of a 10.5 month low, there seems to be no real indication that things will change in the immediate future.
With this week’s weaker than expected (delayed) jobs report from September, and the widely growing belief that 4th quarter GDP will be negatively impacted by the shutdown, the outlook on the US economy is currently a dull one. Adding to this negative outlook is the growing belief that the Federal Reserve will not alter monetary policies before the end of the year. The US is currently using the monthly bond-buying initiative, known as Quantitative Easing, as an economic crutch, and after the shutdown it is apparent to many that the QE crutch needs to be retained. For how long will QE be around? That much is tough to determine, but early indications are pointing towards the end of 2014’s 1st quarter before we will see any type of alteration to the policy. With that being said, anything can happen, as there is no guarantee regarding the retention or downsizing of QE.