Precious metals ended the week in lackluster fashion after bouncing between small gains and losses over the last 5 days. Luckily for gold, it was able to finish the week above the $1,100/ounce threshold. This offers a major psychological boost; something metals have seen very little of in recent months. Silver also finished the week slightly up and will be looking to build upon these small gains next week.
Draghi Comments on Possibility of More Stimulus
Thursday was eventful in that it saw the US Dollar surge to a 2-week high against the euro. The reason for this drastic and sudden climb on the part of the greenback were comments made by members of the European Central Bank earlier in the day. According to Draghi and his colleagues, further stimulus measures do await the European economy, however the timing of these measures remains an uncertainty.
Playing into this uncertainty is, of course, the performance of the Chinese economy. Currently sitting on a few consecutive months of poor economic data, the Chinese economy is leading the global economic slowdown. As difficult as it may be to believe, China’s continued poor performance will have a ripple effect of sorts that will aid causing other global economies to continue slowing.
Oil is another factor affecting what the ECB and many other central banks think about things like stimulating their respective economies This week saw crude oil slump to new lows as it fell well below $27/barrel for a short period of time. With Iranian oil seemingly weeks away from being made available on Western markets, the near-term future does not look very bright.
IMF Downgrades Growth Expectations
Earlier this week, the International Monetary Fund announced that they are going to be downgrading their growth expectations for the global economy this year. Officially, the iMF is expecting the global economy to grow by 3.4% by year’s end. On one hand, the fact that 2016’s growth expectations are better than 2015’s shows that the global economy is definitely doing better, but on the other hand, the IMF’s most recent forecast represents a .2% downgrade from forecasts made in the Fall.
Once again, China is a major culprit in this downgraded growth expectation. The IMF did single out China, but made it clear that many other global economies are not performing well either. At this point, it is becoming increasingly difficult to scoff at the idea of a global economic slowdown, because it seems as thought that is exactly what is happening right now.
For gold and silver, continued weak economic data from the United States and elsewhere might be a good thing. As anxiety grows, investors will more readily seek out safe-haven assets, namely gold and silver. Thursday was a day of gains for metals, and a major contributing factor to those gains was a weak jobless claims report. Officially, jobless claims in the US increased by 10,000 last week, bringing the seasonally adjusted average up above 290,000.
With a major winter storm bearing down on the East coast, there is a chance that the early parts of next week will be quite slow. Something that will be interesting to watch, however, will be how crude oil fares throughout the week. Most are anticipating that the price will continue to fall, especially as the threat of an even bigger supply-glut looms. For gold and silver, crude oil’s sluggishness is not helping accelerate gains. In fact, on days where gold and silver do pick up some value, oil’s pull prevents larger gains from being made. This will be an interesting relationship to pay attention to going forward.