Gold and silver both finished this week in much the same way they did last week, in very disappointing fashion. The United States was the main culprit behind precious metals continued decline as monetary news did a good job at kicking metals while they were already down.
Quantitative Easing to End…Possibly
Currently, the US Fed is increasing the supply of US dollars circulating in the public by way of a monetary policy they label Quantitative Easing, or QE. Whenever you have a surplus of dollars, the value of the dollar decreases; something that has been happening in the United States as of late. This activity may seem counterproductive to economic growth, but the way it works will change your mind.
The more dollars exchanging hands in the public spectrum means that the value of the dollar is falling, and thus, things are cheaper. This not only works on a Micro-economic scale in all of our individual households, it also works on a Macro level with imports and exports. If the things the United States produces are sold at a cheaper price, then more and more foreign buyers will purchase their products and before you know it…economic growth occurs.
It seems as though all of the aforementioned things have happened in a perfect mix because the main topic of discussion at the Fed’s meeting was the possibility of eliminating their QE program. This means that the value of the dollar will rise once again, and we all know that a rising dollar usually means bad things for the value of precious metals. The Fed postponed their actual decision on whether to cut QE until March however.
Speculation Running Wild
The fact that the Fed is waiting until March to make a final decision on QE means that investors are going to speculate to no end. This week the speculation went in the direction of a massive sell-off.
Whenever there are massive sell-offs like this, bargain hunters swoop in to grab gold when the getting is good. That is exactly what happened this week, but the increased purchase in precious metals was not enough to offset the massive decline.
Weekly Shift
At the end of the week, precious metals have taken a significant change from where they stood just seven days ago. Gold lost $29 dollars this week, shifting from $1,610 to $1,581. Silver was down roughly $1.19, falling from $29.98 to 28.79.