Gold and silver are trading lower on Friday to bring to a close what has been a activity-filled week. After hitting a 9-week high in the early morning hours of Monday, gold then fell significantly as a stronger US Dollar put a lot of downward pressure on the metal. Then, only a day later, gold and silver were once again on the rise as the fear of less easy money being circulated throughout the world marketplace caused investors to abandon their risk-on mindsets. In the latter stages of Wednesday, the FOMC made the not so surprising decision to taper Quantitative Easing by another $10 billion per month.
The Fed’s move has since helped the US Dollar make significant gains over the past few days. Next week’s healthy serving of US economic data will likely do well to make or break the Dollar’s impressive run.
Gold, Silver May See Safe-Haven Demand After All
Directly before the Fed made their decision to taper QE by another multi-billion dollar margin, periphery currencies like the Turkish lira as well as equities in the US and elsewhere began selling off in large quantities. This massive sell-off was being directly linked to the threat of less easy money as well as weaker economic data out of China over the course of the past few weeks. In an effort to balance their currencies and their financial markets, central banks in places like Turkey, India, South Africa, and beyond held emergency policy meetings to discuss their options. When these meetings concluded (still before the Fed made their tapering announcement), the overriding result was a raising of lending rates. Turkey led all nations by raising their key lending rate by a whopping 12%. Thankfully, these emergency central bank decision paid off and did will to stabilize markets that were very close to being in free fall.
When the Fed finally made their tapering announcement, the stock sell-off was not nearly as severe as many had feared, leaving gold and silver little room to retain recent gains. Then, just as quickly as gold and silver had made impressive gains, profit-taking brought the metals right back down to earth. Now, with the Chinese economy halted due to the celebration of the Lunar New Year, gold and silver are in a holding position until next week. The large quantity of US economic data scheduled to be released next week will give investors a clearer idea of whether the Fed made the right choice by tapering, or whether their move was a bit premature. Regardless of what pans out next week, many market analysts are sticking to their belief that safe-haven demand for precious metals will continue to rise as the risk-appetite exhibited by worldwide investors continues to decline.