Gold and silver are both trading lower in the early parts of Thursday as most world stock markets have corrected themselves after a turbulent first half of the week. Yesterday’s FOMC decision to taper QE did not come as much of a surprise as most investors were expecting it. Despite gold and silver making gains in the immediate aftermath of the meeting, another $10 billion reduction to QE works out more for the US Dollar than it does for gold and silver.
Periphery Currencies Under Pressure This Week
When markets opened on Monday, the one thing everyone around the world noticed almost instantly was the fact that a boatload of periphery currencies began selling off at a rapid rate. Currencies like the Turkish lira, Indian rupee, and South African rand began taking part in a spot value free fall unlike anything investors have seen lately. The reason for this massive decline in the value of these currencies can be linked to growing liquidity concerns around the world.
As Chinese economic data slows and the US Federal Reserve takes away more easy money, investors are more readily abandoning the weakening currencies of places like India and South Africa. In response to the currency free fall we saw earlier in the week all three central banks held emergency policy meetings. As a result, the Turkish central bank decided to raise its key lending rate by 12%. Shortly thereafter the Indian and South African central banks also raised their key lending rates, though not by as large of a margin as we saw in Turkey. This move helped stabilize the currencies and thus the economies of those nations affected earlier this week.
The final manufacturing PMI for China was released today and what it had to say was disappointing to most investors. Keeping in line with recently poor economic data, Thursday’s final PMI reading for January came in at 49.5. In comparison to December, the PMI for January came back a whole basis point weaker. This data is particularly unnerving because any reading below 50 is suggestive of an economy that is or is on the verge of contracting. This poor economic data is not doing gold and silver any favors either as China is the world’s largest consumer of raw commodities, including precious metals.
As we bring this week to a close and look ahead to next week and beyond, it will be interesting to see if gold and silver can mount on recently positive performances or whether they will be heavily pressured by a stronger Dollar and weaker Chinese economic data.