May 9th Weekly Silver Market Update

Gold and silver have both not made any significant movements forward this week, in fact, they actually moved in the opposite direction. A slew of interest rate cuts from central banks around the world have been the main stories we have been hearing about this week in addition to continued strong physical demand for metals in Asia, specifically China and India. While Chinese citizens are scrambling for gold and silver, the economic numbers out of the country have been disappointing to say the least. The overnight and early morning hours on Thursday saw both gold and silver drop a bit as production and inflation numbers for April came in worse than expected. The world’s second strongest economy is fading fast like a dying star over the past few months, that much is becoming an undeniable fact. The USD has been the main rival for gold as weakened currencies all over the world make it easy for the Dollar to thrive.

China, Center of Attention

The Producer Price Index in China has fallen in April which points to the fact that the Chinese Industrial sector is slowing down. Over the past few months many experts have claimed that China, the current second strongest economy in the world, is beginning to fade as most economies do after an extended period of such impressive growth. In addition to the PPI being worse than expected in China, inflation rose by a larger margin than was originally anticipated. Higher inflation rates may lead the Chinese Central Bank to tighten its monetary policy in order to prevent inflation from becoming a crippling issue. This news comes just a few days after Chinese stock markets posted some of their most impressive closing numbers in a while as well. No one really knows what to expect from China as data out of the country has been good, then bad, then good again.

It wouldn’t be a precious metals market report if we didn’t focus on China further, and that is exactly what we are going to do. Despite less than impressive production numbers and inflation rates, physical demand for silver and gold has been as high as ever. Gold sales in Hong Kong alone at the end of April were up over 50% from the same time a year ago. The demand for the yellow metal in all its various forms is so great that brick and mortar dealers have run out of stock on many occasions lately.

Interest Rate Slashing, Worldwide

At the end of last week the big news was a European Central Bank meeting where it was announced that interest rates across the region would be slashed. It seems as though a lot of central banks around the world are playing follow the leader because after that announcement last week there have been a number of different nations who took the same measures as the ECB. Australia, South Korea, and Poland are just a few countries whose central banks have made it clear that interest rate cutting is necessary. The initial reports of lowered interest rates has been mostly negative for gold but all in all has not had any real, major affect on the yellow metal’s spot value.

The reason behind all these rate cuts is that many nations throughout the world have seen their economies flat-out stagnate. The hope is that lower interest rates will encourage people to go out and spend their money instead of just keeping it in the bank doing nothing. Economists are torn as to whether these measures will actually fulfill their intended purpose, but that is something we will find out over time. Economist Edward Harrison from feels as though interest rate cutting can work, but also brings with it, unintended consequences. He feels as though manipulating rates to unnatural levels makes investors and companies more likely to take risks that look good, but in the end will come back and bite them.

Closing Out the Week

The main things we will be focusing on to bring an end to this week is whether or not more central banks around the world will decide to cut their interest rates. It seems as though that is all anyone is doing anymore and I would not be surprised if we heard a few more stories on the matter before the end of the day on Friday. If the USD index comes in lower over the course of the next 24 hours or so gold and silver might be able to save this week and turn what could be a slightly disappointing 5 days into something much better.

Posted in News

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