Gold and silver both started off the week in relatively disappointing fashion as precious metals investors cannot seem to catch a break as of late. Each and every time the metals make a move forward it seems as though they are falling yet again only a short while later. This time we have rumors about the Fed’s Quantitative Easing as well as disappointing industrial numbers out of China to thank for gold and silver’s early morning and overnight losses. Last week we were hoping that gold would be able to move forward and surpass the $1,500 mark but now we are sitting back and praying that gold does not once again fall below $1,400. Though today’s news has been upsetting so far, there is still another 4 days for metals to make a solid comeback.
Industrial Numbers Down in China
It is no secret that China is the second largest economy in the world. It is also no secret that as of late the economic numbers that have been pouring out of the large Asian nation are becoming increasingly disappointing. On Monday there was more bad news out of China as industrial output in April rose by a number that was less than what was expected. In April, Chinese industrial production rose by about 9.3%, which for most other nations would be great, but for China was lower than expected. This news gives more truth to the fact that China, the world’s second largest economy, may be slowing down. Now, over 9% increase in industrial output would be good for most other countries today, but China has set the bar so high that it is under performing when compared to its own standards.
This, and other recent disappointing news out of China, has put a damper on the outlook for gold and silver. The Chinese government is going to need to do something to alter the direction its economy is heading if it wants to remain one of the world’s strongest economies.
Quantitative Easing to Possibly End
Over the course of recent history, the US Federal Reserve has been buying bonds in order to flood the US with more paper currency. This program and tactic has been known as Quantitative Easing and after the US first employed it, many other central banks have been following suit. The only problem with this lies within the fact that other country’s version of QE have been much more aggressive than the US’ and has caused the dollar to rise in value in comparison to other major currencies as opposed to the expected decrease. Now the US dollar is jumping up in value and because of this the price of gold and silver has been heading downwards. If the program is brought to an end, the US dollar will likely rise in value even more so than what we have seen lately which will be even worse news for precious metals.
It must be noted, however, that even though there are rumors that QE will be brought to an end, no actual fact exists to back them up. Even the Fed’s chairman, Ben Bernanke, has released no statements in regards to whether or when the QE program will be brought to an end. Despite lack of facts, the rumors surfacing have caused yet another surge in the value of the USD.
Looking Ahead
As we move forward into the rest of this week, precious metals investors will have their eyes on the US dollar. As of late it is the dollar that is the main culprit behind why precious metals have been taking such consistent hits. It seems as though whenever the dollar makes a move forward, metals drop, and whenever gold and silver do make a move forward, it is short-lived and almost immediately counteracted by a rise in the value of the USD.
