Gold and silver have successfully recovered from losses posted during the government shutdown, as many underlying positive factors are helping brighten the long-term outlook for precious metals. While large gains were posted in the earlier parts of the week, Wednesday has been marred by a corrective pullback after recent gains. Profit-taking too has been credited with why gold and silver are not performing as well on Wednesday as they were only a day before.
With US governmental issues out of the news for now, investors are beginning to shift their attention to China, which has been emitting worrying economic news as of late.
What’s Going On In China?
With the US government shutdown having dominated the news for the past two weeks, it was almost impossible to pay attention to any other news stories. Recently, it has been reported that interest rates in China are steadily on the rise, a fact that is beginning to worry some investors. If interest rates continue to rise as they are now it is likely that China will be forced to tighten its monetary policy. This is bad news for the spot prices of gold and silver because tighter monetary policy usually means for a decrease in demand from from Chinese consumers.
Housing prices in China are also on the rise, another cause for concern amongst investors.
Stocks Declining Quickly
Yesterday, September’s employment report was finally released, over two weeks late. The market was expecting to see a rise in non-farm payrolls amounting to almost 200,000. In reality, however, the report indicated that non-farm payrolls had actually only risen by about 148,000. This news was disappointing to many, but Americans were happy to see the overall unemployment rate fall by .1% to 7.2%.
In response, stocks have fallen in value in both the US and Europe and investors continue to worry about what the future holds for US stocks.
It is also anticipated that the 2+ week government shutdown will negatively impact 4th-quarter GDP growth in the United States. If this is case, it is highly unlikely that the Federal Reserve will do anything to alter monetary policy. Prior to the shutdown, the widely held belief by the general public and members of the Fed was that the FOMC would reduce its monthly bond-buying program, known as Quantitative Easing, before the end of the year. Now that the US economy is expected to end the 4th quarter weaker than when it began it, the Fed will have no opportunity to do anything to QE.
As more delayed US economic reports are released, we will continue to monitor them and assess their possible impact on the current economic outlook.