Precious metals experienced a gradual downturn during the first three days of the week, but by midday on Thursday all of the previous days’ losses were turned into modest gains. The marquis news stories of the week thus far have been positive economic reports out of both European and Chinese economies as well as some surprising statements made by the president of the Atlanta Federal Reserve Bank.
A weaker US Dollar was also making some headlines, but up until today it really didn’t have much of an impact on the spot value of precious metals.
It has been evident all week that many investors are taking vacation time seeing as the world marketplace has been much quieter than it is at other times of the year.
Contradictory Fed Remarks
If you have been in tune with economic reports and news stories in the past few weeks, you have likely heard your fair share of remarks from the Federal Reserve and its members. Only a few weeks ago, the Chairman of the Federal Reserve, Ben Bernanke, spoke to both the US House of Representatives and the Senate regarding the future of monetary policy in the United States. What Bernanke had to say shocked many people because he toppled the widely accepted belief that Quantitative Easing, the government’s several billion dollar monthly bond-buying program, was not scheduled, or planned to be tapered out by the end of the 2013 calendar year. Bernanke even went as far as to say that QE could even be increased if the US economy takes a turn for the worse anytime soon.
Last week, the Federal Open Market Committee, a part of the Federal Reserve, held a scheduled meeting which was being held in order to discuss monetary policy as well as the current state of the US economy. What the FOMC had to say was none too different than what Bernanke had said only a week or so earlier. Both of these events gave the spot values of both gold and silver a slight boost, while at the same time eliminating the confidence people had regarding QE being extinguished by the end of 2013.
Earlier this week, however, Dennis Lockhart, president of the Atlanta Federal Reserve bank, made some remarks which were almost wholly contradictory to what both Bernanke and the FOMC had recently stated. Lockhart boldly said that there is still a strong likelihood of QE being done away with by the end of 2013. Though he didn’t provide much detail nor a general timeline for the ending of QE, his words were enough to punish the raw commodities sector.
This frustrated many investors due to the fact that if anyone should know what they are talking about in regards to the future of monetary policy, it should be members, especially high-ranking members, of the Federal Reserve. The fact that no one from the Fed can give a clear, concise, and true statement about monetary policy in the United States going forward is unnerving to investors to say the least. Hopefully there will be some sort of follow-up announcement made in the coming days and weeks, though it is important to keep in mind that this is the Fed we are talking about, so I am not holding my breath.
Improving Economic Data Worldwide
Apart from the Federal Reserve frustrating investors, another batch of key economic reports came from both Europe and China. For the first time in a long time, we are reporting positive economic stories out of these regions, which is particularly surprising considering the dismal state of the European economy throughout the first half of 2013.
On Monday, the latest Euro Zone Purchasing Manager’s Index (PMI) reading was released. The Euro Zone posted a reading that eclipsed the 50 threshold, meaning that for the first time in a long time the European economy as a whole might see some positive growth instead of stagnation and contraction.
On Tuesday the good news for Europe continued, this time in the form of an increased number of manufactured goods orders over the period of May to June of this year. Finally, Wednesday saw the German economy receive report which suggested that industrial production was on the rise in Europe’s most prominent economy.
All in all, this news was welcome with open arms by the general European public, though it was adversarial to the spot value of both gold and silver. Declines in precious metals spot values happened over the period of Monday to Wednesday, but a corrective bounce was experienced on Thursday and most of the previous three days’ losses were rectified. This corrective bounce was likely due to an increase in purchases of physical gold and silver thanks to a lower spot value.