Precious metals opened up the week in poor fashion and things really didn’t get much better from there. A quick look at a weekly chart will show you that any and all gains a week ago and the week prior to that were done away with. Now sitting at multi-month lows, the investing world is wondering what it is to do with precious metals. For now, the interest simply isn’t there and that much is killing spot values. Add to this the fact that some other leading commodities are performing poorly and the current state of precious metals might make complete sense.
As for the happenings of the past 5 days, almost none of them had anything to do with gold and silver. Instead, investors had their attention drawn to a lot of activity in China as well as some important economic data from the United States. We are soon going to be bringing August to a close, and what only a few weeks ago looked like a positive month for gold and silver spot values is quickly transitioning into anything but that.
Chinese Stock Sell-Off
The first story to dominate headlines this week was with regard to a Chinese stock sell-off the likes of which we have not seen in quite some time. China’s primary stock index lost more than 6% of its value to begin the week, and such a poor performance almost seamlessly transitioned overseas to US markets. As such, the first few days of this trading week were particularly hard on precious metals as well as stocks. Seeing as China is one of the biggest consumers of gold and silver on an annual basis, any economic downturn there has the potential to bring spot values downward.
After such a dramatic downturn on the part of Chinese stocks, Chinese policymakers were called into action. On Tuesday, it was announced that for the fifth time since November 2014, China would be slashing its interest rates and reducing the reserve requirement ratios for banks. These moves were all made in an effort to pumping a floundering economy with life-sustaining cash.
Unfortunately, China’s move to slash rates only worked to unsettle the belief that interest rates in the US were going to be risen in September for the first time in more than a half decade. In addition to this, comments made later on in the week by a high-ranking member of the Fed alluded that we may have to wait at least another month until we see interest rates risen. This, along with a general settling of the global marketplace, allowed for stocks and the US Dollar to get back on track to close out an otherwise bumpy week.
US Q2 GDP Revised Upward
After the first and second quarters of this year failed to overly impress from a GDP standpoint, some people were seriously calling into question the actual strength of the US economy. Today, many of those doubters were aptly served via a revision to Q2 GDP data.
Despite prior readings showing economic growth in the second quarter of more than 2%, the revised figures show that the US economy actually grew by more than 3.5% during the second quarter of this year. This massive revision boosted the general confidence of the American investing public. This, coupled with the fact that interest rates may be risen later than expected, ended up giving stocks and the Dollar a boost to close out the week. For gold and silver, these events were mostly non-factors, but, if anything, they worked against prospects. As we head into next week and the month of September, it will be interesting to see how the market reacts to the possibility of not seeing boosted interest rates.