Due to the celebration of the Memorial Day holiday on Monday, the trading week didn’t really get underway until Tuesday this week. That said, most precious metals investors probably now wish that this week flat-out didn’t happen. When markets opened on Tuesday the wider investing world witnessed much of what they had witnessed for the past month or so; spot values trading sideways and not really making much progress in either direction.
All this time we have been hearing market expert after market expert claim that spot values are on the verge of making a move, though what direction that move would be was uncertain to many. By midday on Tuesday, however, investors realized that spot values’ next move was directly downward. Tuesday saw gold and silver lose massive amounts of value as the market bears made it clear that they were now in control. The rest of the week saw the market really quiet down as a large portion of investors are gearing up for next week’s European Central Bank policy meeting.
ECB Meeting Heavily Anticipated By The Market
When the market bears made their presence known earlier this week, it was always going to be difficult for precious metals to bounce back from Tuesday’s losses. Things worsened for precious metals as the week wore on as a result of upbeat US economic data followed by a general lull in the number of inputs making their way to the market. Because investors are expecting the ECB to make an important announcement at their meeting next week, it comes as no surprise that most traders preferred to simply hold their positions until the meeting actually takes place.
Though none of this has been confirmed, there are a number of investors who would be willing to bet that the European Central Bank is going to announce the implementation of new monetary stimulus at the conclusion of next week’s meeting. Unless you have been living under a rock for the past year or so, it is a known fact that Europe is and has been dealing with deflationary pressures. At first, most people were convinced that all this talk of deflation was a temporary problem that would work itself out, but now, investors have grown confident in the belief that the European Central Bank needs to do something to combat deflation. For this reason and many more, the wider investing market is convinced that the ECB will loosen its monetary policy as a result of next week’s meeting.
Normally, the loosening of monetary policy in a major economy would be beneficial for precious metals’ spot values. This time around, however, things are a bit different as fresh monetary policy in Europe stands to benefit the US Dollar far more than any other asset. The reasoning behind this school of thought is simple; loosened monetary policy will more than likely put downward pressure on the euro currency which will, in turn, give the US Dollar plenty of room to make gains. If US equities continue to perform well in conjunction with a rising US Dollar, there will be little to no room for gold and silver to bounce back from this week’s losses, at least not in the short run.
Still, the ECB has yet to make any monetary policy moves and there is still no guarantee that they will do so. For this reason, it will be important for all types of investors to pay close attention to anything and everything the ECB has to say about the European economy and what the future holds for it.