Gold and silver can’t seem to catch a break as the first full week of May brought with it more disappointing weekly numbers. Two main reasons behind why precious metals did so poorly this week was a surging US dollar and poor economic news from China. While for the first few days of the week gold did not see any major losses, the early morning and overnight hours on Friday sealed the deal that this week would be one of losses.
Chinese Economy
Two economic reports out of China were poor for both the country and all those who are interested in precious metals. First off, the Producer Price Index for April was much lower than expected which has caused many people to think that perhaps China is not as strong of an economic powerhouse as previously thought. To add insult to injury, inflation rates in China this past April rose by a margin that was greater than expected. This news could cause the Chinese Central Bank to do what a lot of other countries aren’t, and that is tighten monetary policy. Tightening monetary policy is something that may be necessary as China does not want inflation to become too big of an issue.
Despite poor economic indicators, the nation as a whole is still seeing demand for gold unlike ever before. This is undoubtedly due to the low price of gold but the number of stores running out of stock of coins and bars is something that has never been seen before.
More Interest Rate Cuts
Last week we heard about the Central Bank of Europe slashing interest rates, but this week it was Australia and South Korea who joined in on the fun. Cutting interest rates is a way of trying to spur economic activity by urging people to take their money out of banks and spend instead of simply sitting on it and letting it accrue interest rates.
Many economists struggle with this thought, as they think manipulating interest rates past their normal levels brings unintended consequences. Only time will tell if lowered interest rates across the world will help save many ailing economies.
The Week Ahead
As we move to the next week of May, one of the main things to keep an eye out for is the value of the US Dollar. As of late, and in general, whenever the dollar rises in value gold and silver tend to move in the opposite direction. Part of the reason why the last day of this week saw $25+ losses was due to the fact that the dollar had an incredible run.
It is a strange predicament too because other currencies around the world are only getting weaker which means the dollar has all the room it wants to move forward, something it has been doing as of late.
Weekly Shift
Gold started the week at $1,471 and ended at $1,447. This was a loss of $24. Silver started the week at $24.20 and ended at $23.87 which is a loss of 33 cents.