Precious metals began the week moving mostly sideways, but by week’s end the pressure was on once more. All in all, this was one of the more eventful weeks we have witnessed in recent history, mostly due to the fact that the Federal Reserve of the United States finally made the decision to hike interest rates. This is a decision investors have been questioning and debating for quite some time now, so in many respects, it was a long time coming.
As has been the case for the past few weeks the attention of investors this week did not stray too far from what was happening in the US. Global headlines trickled in, but they were mostly overlooked by investors.
Fed Finally Decides to Raise Interest Rates
The big news of the week heading into this week was the December meeting of the Federal Open Market Committee. For months now, investors the world over have been wondering when the Federal Reserve was going to act on raising rates. Despite so many months where it was believed that rates would be risen, this time around the Fed finally acted.
In the wake of their Tuesday/Wednesday meeting, the FOMC announced that interest rates in the US would be risen by .25%. In addition, the Fed went on to say that further interest rate hikes are likely so long as economic conditions permit. In the immediate wake of the Fed’s decision, both gold and silver managed to make gains, but only a day later that all changed. Come Thursday, both gold and silver had suffered massive losses, with gold falling closer to the $1,000/ounce threshold and silver falling well below $13/ounce. The immediate future does not look promising for gold and silver either, as investors are more readily seeking out interest-bearing assets in order to take advantage of this recent Fed decision and any further decisions down the road.
On a much larger scale, the price action of spot values is something that is concerning not only to investors, but also to the mines that produce these metals. It is widely believed that if gold falls and stays below $1,000/ounce, mines will not be able to make money on extracting gold from the earth. While they may be able to profit on the gold itself, the consideration of overhead and labor costs means that most mines will be left working in the red. We are still a good bit away from values so low, but falling below $1,000/ounce is something that can definitely happen.
It will be interesting to see just how far precious metals fall. Thankfully, Friday saw a bit of a recovery on the part of the precious metals market. With that being said, these gains are more than likely the product of bargain-hunting buying, and people generally taking advantage of the fact that spot values dipped so drastically on Thursday.
As we look forward to next week, there isn’t much on the slate for investors to mull over and discuss. The Christmas holiday falls on Friday, and many people will be seen taking a few days off in order to spend time with family and friends. The slow holiday season is something that will, in all likelihood, work against precious metals and force spot values even lower. In addition to Christmas falling on this Friday, the New Years holiday is going to take place just 7 days after Christmas, so the next two weeks are shaping up like they will be much slower than normal. Of course, anything can happen between now and the holidays.