FOMC Meeting and Speculation

Whenever the Federal Open Market Committee has a meeting investors seem to go crazy with all the speculation that circulates. Even when the meeting is expected to yield no big news, investors and market watchers speculate endlessly. This time is a bit different, however, because this meeting has the potential to yield some large changes to the current US monetary policy known as Quantitative Easing. The purpose of QE is to have the Federal Reserve banks of the United States pump loads and loads of cash into the marketplace in an effort to devalue our currency and thus make our exports cheaper. This tactic has been going on for an extended period of time up to this point, though now many people think that the US economy has recovered enough from the economic collapse of 2008 that QE is no longer a necessary tactic. The Federal Reserve chairman himself, Ben Bernanke, has already stated that the winding down of QE might be seen as soon as sometime this summer; which is why this FOMC meeting is of particular importance to the world marketplace.

If QE is brought to an end this will undoubtedly be bad news for precious metals, but the Wall Street Journal reported what they think the outcome of the meeting will be and while it is still negative for precious metals, it is not as bad as some other ideas floating around. The WSJ reported that they believe that FOMC will decide on a tapering of the QE program. This type of approach to the winding down of QE will keep interest rates low while decreasing the amount of money being pumped into the economy on a monthly basis. This is a much better than other solutions, some of which include the idea of simply up and quitting QE all at once. If that were to happen it could mean very bad news for both gold and silver.

Starting the Week

With the FOMC weighing heavily on just about every investor's mind, there will likely be little movement of precious metals on Monday or the early morning hours of Tuesday. Though this is definitely subject to change, many investors will be waiting for Ben Bernanke's post-meeting address before they make any bold moves with their assets.

While Asian and European markets have been having tough runs as of late, the early part of this week saw them start a bit stronger. The next 4 and a half days will see if they can sustain any sort of positive run.

Chinese Economic Data

China has been taking an unusual approach to releasing economic data recently, as their last two reports have been released over the weekend. This week China reported that May's Producer Price index fell by almost 3%. Additionally, imports fell in May by just short of half a percentage point. As you can already see, much of the economic data that was released out of China came in weaker than anticipated, further proving that the Chinese economy is seeing its worst run in a long while. It was not all bad though, as industrial production was up 9.2% in May, though this is weaker than the industrial production we saw this past April.

Electric output in China rose by a little over 4% in May, but this number is about 2 percent weaker than the rise we saw in April. The fact that Chinese economic data is so bad is actually working as a bear to precious metals, at least for now. Unfortunately for China, it seems as though the worst is not over as the world's second largest economy has had very little luck over the course of recent history.

Japan and the United States

Over the past 3 and a half weeks or so, the Japanese Nikkei Index has experienced its worst run of form in quite some time. Losing nearly 20% of its value during that time frame, investors and market watchers were shocked as things just seemed to get worse and worse. Monday brought with it some good news as the Nikkei Index posted gains of about 5%. While this is a long way away from recovering its losses from the 2-week slide it experience, it is most definitely better than nothing.

As will be the case for a majority of the week, Monday brings with it very light economic news from the United States. The president of the St. Louis Federal Reserve, James Bullard,  is set to speak, though as of now it is unclear as to what the topic of his speech will be. Mr. Bullard is a voting member of the Federal Open Market Committee which means that everything he says today will be heavily scrutinized by market watchers and investors everywhere.

The USD Index is stronger on Monday, though still not where it was at prior to last week's late decline.

Starting the Week

This week is going to be a light one as far as economic reports go, which means that the US dollar and stock markets will be watched closely. As of now there are few things shaping up to be overly positive for precious metals, which means that we may be kicking off another disappointing 5 days.

Asian Reports

Though it was a bit unorthodox, China released its latest slate of economic news this past Saturday. The report in question was the Purchasing Managers Index and it rose by about two tenths of a percentage point between April and May. The official numbers moved from 50.6 to 50.8 and though this seems and is a relatively small gain, it was more of a gain than anyone had anticipated. Despite economic news being better than what we have seen lately out of China, Chinese stocks fell on the news of an improved PMI.

Though our next bit of news to report on from Asia is not an economic report of sorts, it has just as big of an impact. The Japanese Nikkei Index fell yet again in the early morning hours on Monday which brings losses in not even two full weeks to 17%. This unprecedented decline in the value of Asian stocks has caused a lot of investors and market experts to think that Japan's hot streak is over. Despite the past month and a half or so being incredibly positive for the Japanese economy, the most recent two weeks have been almost wholly negative.

Another popular thought circulating around the marketplace in the wake of the decline in Japanese stocks is that these negative numbers will be replicated by other recently surging stock markets around the world, particularly US stock markets. Though it is still uncertain how stock markets are going to fare throughout the course of this week, if US and Japanese stock markets do decline dramatically you can expect this to be very bullish for precious metals.

European PMI Report

Just as we had the Chinese PMI released over last weekend, the eurozone's was released to be talked about and mulled over on Monday. We saw China post a positive increase in their PMI between April and May, and while we saw the same type of result in Europe, Europe's ending numbers still suggested that the region's economies are contracting instead of growing. The eurozone's official PMI increased from 46.7 in April to 48.3 in May and usually a PMI increase of more than a percentage point is positive, but any number under 50 means the economy in question might be contracting.

Starting the Week

The first full week of June is not a very exciting one as the few economic reports that we are awaiting are not going to be released until Thursday and Friday. On Thursday the European Central Bank is having their monthly meeting and that is where investors can go to look for a more concrete outlook on what the future holds for the region. On Friday, a US Unemployment report highlights the headlines and with jobless claims last week coming in worse than expected, this unemployment report will catch the eyes and ears of many.

Japan Dictating Movement

As of late, the two countries that have been indirectly dictating how and by how much gold and silver move are Japan and the United States. With the Japanese stock market doing better now than at any point in the past 5 years it is easy to see why investors have shifted their interests away from safe-haven assets and are out in search of more instantly profitable investments. While the Japanese stock market has been performing amazingly lately, the Yen has not been. The reason behind the Yen's weak performance relative to the US Dollar can be attributed to the fact that the Bank of Japan is currently employing a monetary policy to devalue their currency.

Monday saw the Yen halt its decline and even make small gains, but this is not too surprising after how badly it has done lately. Some short covering by investors is the reason why the Yen gained in value but it is thought that this gain will only be temporary before the landslide begins anew.

China and the US

In other news, China recently reported that housing prices rose by anywhere between 2 and 3 percent in April. Two different sources have cited two different price increases but neither of them are good for China. Many experts think that continued news stories such as this may cause the Chinese central bank to tighten monetary policy in order to fight inflation. Every time we look around it seems that China is emitting more and more dreadful news stories, giving credence to the fact that their booming economy is slowly but surely becoming anything but that.

As we focus on the United States, the story remains the same as it was more than a week ago in that rumors are continuing to fly about the future of Quantitative Easing. The president of the Dallas federal bank has indicated that members of the Fed are presently debating about the future of QE. If, in the near future, QE is brought to an end this could be incredibly bearish for gold and silver. To put it in perspective, mere rumors regarding the end of QE were enough to hurt the price of gold, one can only guess what will happen if a solid announcement on the matter is made.

Starting the Week

While the early morning hours on Monday saw gold and silver continue to decline in value, the story was different as the day wore on. By about 2 in the afternoon on Monday, gold was up by about 20 dollars while silver picked up nearly 30 cents. Both metals have a long way to go until they reverse the dismal numbers posted last week, but this is a start.

QE to End?

At the end of last week there were rumors circulating involving the Federal Reserve of the United States possibly putting their bond-buying Quantitative Easing program to an end. Though the Fed's chairman, Ben Bernanke, had nothing to say on the matter, the US dollar surged on these rumors. In comparison to the Japanese Yen, the US dollar has recently hit a 4-year high. This is big news but not too surprising seeing as Japan is aggressively weakening its currency; a tactic that has paid off so far.

As of now the Fed is spending over $80 billion per month buying back bonds from the public. This bond buying has flooded the market with US dollars which, at first caused the value of the dollar to drop. Now that a slew of other countries are also employing QE tactics, a majority of which are more aggressive than the US', the dollar is gaining value on currencies from places like Japan and China. If QE is brought to an end it will undoubtedly boost the value of the US dollar which will likely bring down the value of precious metals. Like we said, there is no verifiable facts to confirm that QE will be brought to an end anytime soon, but the rumors alone have caused the USD to gain value.

China Floundering, Stagnating

China's industrial output was up over 9% in April, and to most this would be good news, but the rise in output was lower than expected. Actual industrial output in China was up about 9.3% which is about 2 tenths of a percentage point worse than what was expected. Experts have been claiming that the world's second strongest economy is beginning to slow down and stagnate and this story is merely evidence confirming that thought. Poor news out of China has been bad for precious metals as of late and this story is no exception.

China is going to need to change something in the coming weeks in order to offset such disappointing industrial and economic numbers as of late. The world economic climate is a tough one to flourish in, but being that China is expected to be a shining light in a dark realm their recent numbers have been upsetting to precious metals investors. Last week we were talking about gold possibly surpassing the $1,500 threshold and now we are holding our breath hoping that the yellow metal will not drop below the $1,400 mark.

Starting the Week

As we start this week of May precious metals investors will be keeping their eyes on the movement of the US dollar. As of late, the main culprit behind why gold and silver have not been able to record lasting gains is the US dollar and its recent run of form.

Lowered European Interest Rates

With much of Europe facing mounting debt and economic issues, it is no secret that something needed to be done, and quickly. Taking heed of this fact, the European Central Bank had a meeting last week to discuss the future of the many economies that comprise the EU. The conclusion of this meeting saw leaders content with lowering interest rates across the region from .75% to .5%, a one third decrease in rates. The hope is that lower interest rates will spur people to spend their money and spur economic growth. The other alternative that was discussed heavily in the lead-up to the meeting was the possibility of a massive gold reserve sell-off among many of the nations.

Gold and silver investors did not like the idea of national sell-offs of precious metals because of what happened when Cyprus employed that course of action. In case you forget, Cyprus, the island nation with a world of problems, sold off a large majority of their gold reserves which resulted in a massive collapse in the spot value of both gold and silver. If a tiny island nation like Cyprus can cause such havoc on the marketplace, who knows what would happen if a larger country, like Germany, were to sell off a large part of their gold holding as well. Now, investors and Europeans will have to play the waiting game in order to figure out if the ECB's interest rate reductions will do any good in the way of fixing many broken economies.

Fighting the Dollar

Gold prices have had a hard time rising and stabilizing as of late with much of the blame being placed on a surging US dollar. Just this past Friday a US jobs report was released that showed unemployment numbers in the United States on the decline. With fewer people out of work, more people have money to spend and for this reason the US dollar is becoming stronger. Any investor in precious metals knows that whenever paper currency is doing well, it usually spells bad news for hard assets like gold and silver.

Also playing a vital role in this equation is the fact that currencies all over the world are being heavily devalued. This may seem like it doesn't concern gold or silver, but so long as the USD is gaining against other currencies like the Chinese Yuan and the Japanese Yen it will be hard for gold and silver to make gains against the US dollar.

Starting the Week

With most of Europe celebrating a holiday today, the start of the week has definitely been a slow one. Gold and silver more or less held their positions throughout overnight trading as the return of Asian traders after a holiday last week has not done much in the way of moving precious metals.