Gold and silver ended the day on Friday in positive fashion but netted losses this week, the first time in about a month for gold. Strong equity performance all over the globe was a major theme this week, most of which was fueled by strong economic data in the United States.The global economy is well on its way to recovery as investors the world over are seeing stock indexes increase in strength and grow at rates that have not been seen in a few years.
Physical demand for precious metals is still quite high, but physical demand alone is not going to be enough to help gold combat the strengthening global equity markets.
Gold Holding Steady, Global Economy Growing
After last Friday’s weak non-farm payrolls report hit the marketplace, investors immediately began to call into question the strength of the US economy as well as the Fed’s recent decision to taper Quantitative Easing. In case you missed it, non-farm payroll growth for this past December was reported at 74,000. The report was seen as so severely disappointing simply because the market expected to see growth of payrolls in December somewhere in the neighborhood of 200,000; keeping in line with the 215,000 average payroll increase we have seen over the past four months or so. As you might imagine, such weak payroll growth translated into higher gold and silver spot values last Friday and on Monday of this week. Investors were hoping that the gains would continue throughout this 5-day session, but stronger economic data prevented that from happening.
We are well within earnings reports season which means that companies will be publishing their financials from the 4th quarter of 2013. Thus far most earnings reports have been positive, bordering on the line of impressive. That, combined with upbeat retail sales and factory orders reports helped propel US equities forward this week. Equity markets in Europe and Asia responded to the positive US economic data by following the lead of US stocks.
With global stock markets on the rise and the US economy continuing to perform well, investors are wondering whether or not the Fed will pursue further tapering measures at any point in time this year. The Fed is scheduled to meet next on the 28th of the month at which point we will hopefully receive some insight into how the FOMC feels about intensifying tapering. Two voting members of the Fed were quoted this week as saying that they want to see QE completely eliminated by the end of this year. Even though all this easy money leaving the US marketplace is seen as a bad thing for the value of precious metals, the fact of the matter is that gold and silver withstood one tapering decision and even recovered so there is no reason for us to think they won’t be able to do the same if tapering is increased.