After losing for much of the week, precious metals slowed their descent on Friday. All in all, this was a fairly important week not because of the economic data that was dealt, but due to the release of some key information regarding the future of interest rates in the US. To be fair, there was some important economic data dealt this week but it did not have big of an impact on the global market as you might have thought it would.
Now, we are faced with a situation where it will be interesting to see just how far gold and silver spot values will fall. Barring some incredibly poor economic data or some sort of statement from the FOMC it is looking like the near-term future is going to present some issues as it relates to precious metals making lasting gains.
FOMC Minutes Cause a Stir
On Wednesday, while many people were gearing up for the weekly jobless claims report, the minutes from the FOMC’s last meeting were made public. In the immediate wake of the minutes’ release we saw a drastic reaction from investors. This was the case because, contrary to popular belief, most voting members of the Fed support a June rate hike. Of course, the one qualification for a rate hike is that US economic data must warrant it. Even in light of somewhat poor data recently investors showed that they really think June might be the time when rates are finally risen again.
Gold and silver were beaten down noticeably in the wake of the minutes’ release as the USD gained more and more momentum. To help you gain a bit more insight, precious metals lose value on word of impending interest rate hikes because increasing rates does well to increase the value of the Dollar, which almost always works against the prospects of precious metals. Another reason gold and silver will not benefit from raised rates is the fact that higher interest rates means that the opportunity cost of holding metals in lieu of other, interest-bearing assets increases dramatically. Simply put, holding gold in the wake of higher interest rates means that you very well might be missing out on more profitable investments elsewhere.
This week’s jobless claims report did well to calm the nerves of investors as well as it was reported that last week’s first-time claims for unemployment benefits fell by more than 15,000 from the week before. Analysts were calling for things to normalize this week after an unexpected surge in claims was reported a week ago, and that is exactly what happened. What this also does is give investors a bit more confidence that the US economy is, in fact, quite stable at the present moment in time.
US Economic Data Improves Dramatically
Over the course of the last few months economic data from the US has been anything but consistent and, majorly, has been quite poor. This week, however, the tide seems to have shifted a bit as both industrial production and consumer price data from April came back better than expected.
First up was industrial production which, due to the surging value of the USD this year, has been quite negatively affected. April saw industrial production grow by .7% which is not only much more than expectations, it is the first time industrial production moved upward in about three months. Helping this figure was electricity production, which moved forward at the fastest pace recorded in more than a decade.
Consumer prices also jumped forward in April, though this move forward was about in line with expectations. All in all, the upbeat economic data from the US seems to have tied in perfectly with the FOMC minutes suggesting interest rate hikes might finally be happening again in June.