As of the writing of this post early Wednesday morning, both gold and silver spot values were conceding marginal value. After two consecutive days of gains to start this week off, some profit-taking losses should really come as no surprise. Also beating gold and silver down today is a stronger US Dollar.
The theme of this week has been and will continue to be the overwhelming amount of economic data that is being made public from the final month of 2014. So far we have received a number of data points from both the US and the European Union, but very few of them have had any major impact on the global marketplace. What has caught the attention of investors, however, has been the downward trend of most major global equity markets. Especially for stocks in the US and Europe, the last few days have been extremely poor. In all honesty, the poor performance of global stocks has been a major contributing factor to the gains made by precious metals over the last few days.
Crude Oil Drives Equity Markets Downward
A theme in the marketplace over the last few months has been the downward trend of crude oil. The black gold has been beaten down due to there being so much of a supply to satisfy a demand that really hasn’t changed much. Earlier this week, on Monday, the value of a barrel of crude oil dipped below $50 and this alone sent the marketplace into a bit of a shock. The price of crude oil has remained under $50/barrel and because of this, energy stocks have suffered considerably.
It isn’t just energy stocks that are feeling the brunt of declining crude oil prices either, because most major global equity markets have been in the red through the first half of this week. The reason for this is due to the growing belief that subdued crude oil prices will lead to severe price deflation across the world. Because of these and other economic concerns, safe-haven demand for metals has been on the up and up through the first 2 and a half days of this week.
As we look ahead to the next few weeks, we will be dealing with both an influx of economic data as well as a few central bank meetings. Most notable of these events is undoubtedly the upcoming European Central Bank meeting. The reason investors are so concerned with the ECB meeting is due to the simple fact that they believe a monetary policy shift will be announced. As it stands, the market is expecting to hear of a bond-buying initiative to be put into action in the near future. Just the thought of this announcement has caused the Euro to depreciate this week, and so long as this commonly held belief remains, the Euro will have trouble recovering any of those losses. This, of course, is great for the US Dollar, which has been making gains against a number of rival currencies since the end of last week.