Precious metals bounced around between small losses and gains all week, but by the time the week was brought to a close it was clear to see that metals came up short and will finish things in the red. As has been the case for months and months now, the predominant story line was that of speculation regarding what, if anything, will come as a result of next week’s FOMC meeting. With interest rate hikes still dominating discussions across the world, it is difficult to talk about much else.
Highlights of the week include a few different US economic data points, most of which missed the mark. In addition to this, a massive equity sell-off earlier in the week was also worth nothing. While this might have you thinking that gold and silver should have made nice gains, the interest rate speculation all but derailed that. In addition to the plethora of conversations from the US, we also received word regarding what the Bank of Japan might or might not do with regard to their own policy. Next week will see both the BoJ and the FOMC meet for their monthly policy meetings, so it will be an interesting week most certainly.
Though there were quite a few pieces of economic data dealt, some of them were more important than others. First up was what is arguably considered to be the most important piece of weekly data we receive; the weekly jobless claims report. For those who may just be jumping back into things after a Summer vacation, the weekly jobless claims reports have been nothing short of spectacular. In fact, leading up to this week, claims for unemployment benefits had stuck below the 300,000 mark for in upwards of 80 weeks. This is the longest such streak since the early 1970s. Making this even more impressive is the fact that, back then, the labor market was significantly smaller than it is now, so for us to have such consistently strong data is a testament to how strong the employment sector of the US economy actually is.
When the Department of Labor delivered there report, we saw that first-time claims for unemployment recorded last week came back about 1,000 more than the week before, bringing the seasonally-adjusted average number of claims to an even 260,000. As was previously mentioned, this brought the sub-300,000 streak to 80 consecutive weeks. In all, however, this report did not have the biggest impact on markets mostly because, at this point, upbeat weekly jobless claims reports have been the norm for some time.
In addition to the employment data, we received reports regarding August retail sales, producer prices, and industrial production. We could break down each report, but simply put, they all missed the mark to some extent. This put a huge damper on interest rate hike expectations. To be fair, there was only ever a roughly 20% chance that a rate hike announcement would come in September, but now that number is moving steadily downward and edging in on 10%. To make a long story short, it would assuredly take the global market by surprise if US interest rates were hiked come this time next week. What’s more, it would not be the best news for precious metals either. Increasing interest rates increases the opportunity cost of holding metals in lieu of other, interest bearing investments, and even though we have long expected further rate hikes to come, an announcement confirming it would assuredly push metals downward.
Though very few people know exactly what to expect from next week’s meetings, we do know that it will be an interesting week. In all likelihood, monetary policy in the US will be left unchanged, but that much is still up for debate for the time being.
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