Gold and silver spot values had a bit of an up and down week thanks to contradictory outlooks regarding interest rates in the United States. As you have probably gotten used to by now, the marketplace is almost exclusively concerned with what will happen to interest rates between now and the end of the year.
Another story making headlines this week was a scandal involving massive car producer Volkswagen. Though it may seem a bit odd, this story and relating scandal have had a negative impact on the spot value of platinum.
Volkswagen Scandal Pushes Platinum Downward
Platinum lost a lot of value this week thanks to a scandal that broke regarding Volkswagen allegedly cheating on US emissions tests. Emissions tests in the US, which basically test how much a given vehicle pollutes the environment, are crucial for car producers who are constantly trying to lower the emissions of their vehicles. This affects precious metals because the vehicles in question are almost all diesel vehicles, and platinum is used in diesel vehicle’s catalytic converters in order to cut down on pollution. If these accusations turn out to be true, the fear is that demand for diesel vehicles, and thus demand for platinum, will decrease dramatically. If people begin to find out that their vehicles are polluting the environment at a much higher rate than originally anticipated, what is keeping them from choosing a traditional gasoline or electric vehicle?
In addition to the VW scandal, platinum is suffering due to decreased Chinese consumption as well as overproduction of the metal in South Africa. All in all, we have seen the metal’s spot value take wild swings this week and as of the writing of this post the metal remains highly unstable.
Fed Comments on Interest Rate Hikes
The Federal Reserve of the United States has been under the spotlight for the better part of the past few months. Investors the world over have been concerning themselves with when interest rates will be hiked in the United States. Earlier this week, a poll of economic experts by Reuters indicated that most people think rate hikes will take place in December. According to the poll, experts assigned a 60% probability to December rate hikes. With that being said, it is important to remember that a similar poll conducted during the Spring held that rates would be hiked in June, and that clearly did not happen.
Janet Yellen addressed the world on Thursday and indicated that so long as inflation in the US remains steady, the door is still open for 2015 rate hikes. As it stands, inflation in the US is at about .2%, which is far off from the 2% goal set forth by the Fed. Despite this, most Fed members remain confident that interest rate hikes are coming in the next three months. Atlanta’s Federal Reserve chairman Dennis Lockhart also spoke this week, and he more or less echoed Yellen’s statements. Thanks to the fact that so many economic experts think that rates will still be hiked this year, the Dollar closed out the week rallying while precious metals were left reeling. As we head into next week and the beginning of October, I find it hard to imagine that we will be focusing on much else apart from continued interest rate hike speculation.
It will be interesting to see what happens with the Volkswagen scandal as well, because some reports indicate that it may be more than just the German auto manufacturer who cheated on US emissions tests. Hopefully, this story develops more during the early stages of next week so that the market has something other than US interest rates to talk about.