This week was relatively uneventful, but for precious metals it was the first week of gains we have seen in quite some time. A good bit of economic data from the US was released, but the attention of the market was fixated on some happenings taking place in China. The outlook on interest rate hikes was somewhat altered, but by the end of the week US economic data once again had investors thinking that interest rates would be raised by September.
As we look ahead to the second half of the month of August, I am not expecting there to be all that much in the way of markets-moving economic data. Instead, you will likely see investors the world over paying close attention to any and all market activity happening in the United States.
China Opts to Devalue Yuan
Earlier in the week, on Tuesday, the global marketplace was taken aback by the fact that China acted to devalue their currency for the first time in a few years. Not only was the market not expecting to see the Yuan devalued, they were definitely not expecting it be devalued by the 1.9% which it was. Naturally, this move made by the People’s Bank of China caught the investing world off guard and ended up having a negative impact on US stocks as well as the US Dollar. Things only got more confusing on Wednesday when the People’s Bank decided to further reduce the Yuan’s value.
For gold and silver, all this turmoil happening across China acted as a propellant that pushed spot values forward. The reason behind China’s move to devalue the Yuan is an effort to make the Chinese economy more competitive. By doing this, Chinese exports are seen as cheaper in the eyes of foreign investors and purchasers. Going forward, it will be interesting to see what kind of impact China’s policy shifts have on the US economy. At present, there are many people who think that China’s moves may end up having a negative impact on the timing of interest rate hikes.
US Economic Data Comes Back Upbeat
After taking a hit thanks to the China news, the US Dollar and stocks in the US ticked back upward upon the release of the most recent retail sales from the month of July. During July, it was reported by the US Commerce Department that retail sales did extremely well. Out of 13 total retail sales categories, the Commerce Department reported that 11 saw nice gains.
In addition to that, it was also reported that weekly jobless claims from last week ticked upward by 5,000. Though it is never good to see claims for unemployment benefits move upward, it was encouraging to see the monthly moving average of jobless claims hit a 15-year low. The outlook on interest rates was revived thanks to this data, and once again the market has become convinced that September is the time when we will see interest rates hiked.
Going forward, economic data from the US will continue to be one of the biggest factors paid attention to by the market. Interest rate hikes are going to remain the hot topic of discussion across the global market, but I do not envision the outlook on rate hikes changing without any earth-shattering development somewhere across the global marketplace. So long as interest rate hikes are expected, it is going to be difficult for gold and silver to make any significant gains.