Gold and silver posted substantial losses this week in the wake of the latest European Central Bank meeting and some stronger than expected US economic data. Gold is now sitting at a 3-week low and has fell under $1,300. The US Dollar has been rallying all week long at the expense of the euro currency.
The recently strong economic data out of the US has prompted people to believe that Quantitative Easing may be wound down before the end of the year. However, the outcome of the ECB meeting this week has caused others to believe that the Fed still has some time before they need to make a move in regards to monetary policy.
ECB Meeting and Outcome
This week’s European Central Bank policy meeting was on the top of every investor’s agenda. Investors from all over the world speculated in the lead-up to Thursday’s meeting as to what its outcome might be. Some experts and investors believed that the ECB would slash its key interest rate, while others believed that lending rates would not be changed.
When the meeting actually took place, the surprising outcome was that the ECB would, in fact, cut its key lending rate by .25%, to a new low of .25%. This initially gave precious metals a boost, though after a while the euro currency began declining again which prompted more gains by the US Dollar. The surging US Dollar put heavy downward pressure on precious metals, preventing any gains from being made. Another factor hurting gold and silver was the recent run of positive economic data out of the US.
US Economic Data
In addition to the somewhat surprising outcome to the ECB meeting, this week was full of positive economic data out of the United States. Early in the week it was reported that 3rd-quarter GDP grew, on an annualized basis, by 2.8%. This was well above the market expectations of 2%-2.5% growth.
Friday yielded even more surprising economic data in the form of October’s employment report. It was expected that non-farm payrolls would have risen by 120,000, though the actual figures showed a shocking rise of more than 200,000. This news helped strengthen the belief that Quantitative Easing may be tapered sooner rather than later.
It will be interesting to see if the USD continues to rise in value next week or if things begin to level off. In the last bit of news released this week, it was reported that France’s credit rating was downgraded to AA by Standard & Poors. France being unable to restrict rampant government spending was the reason behind the reduction in France’s credit rating.