While gold posted some good gains on Wednesday, some overnight news out of China was to blame for the slow start on Thursday. By the time markets opened on Thursday gold was down about 5 dollars while silver, though down a few cents, remained relatively stable. The European Central Bank alluded to the fact that the eurozone economies may struggle more before they see any improvements. On the week up to this point gold is down almost ten dollars while silver is down closer to 40 cents. It seems as though this week is shaping up to be another disappointing one for precious metals.
China’s Ups and Downs
It is no secret that many people believe China’s economy is beginning to slow down and become only a shadow of what it was a few years ago, but the facts supporting that thought are beginning to mount. The most recent development out of China was that the Producer Price Index fell in April by a larger margin than was anticipated. This is a strong indication that production in China is slowing down considerably. To add insult to injury, inflation rates in the large Asian nation rose by 2 tenths of a percentage point more than what was expected. With this being the case, not many people would be surprised if Chinese monetary officials were to tighten their monetary policy in order to fight off further inflation.
Despite all of this economic data, physical demand for gold, whether it be jewelry, bars, or coins, has risen considerably over the past few weeks. According to Bloomberg.com, at least 30 tons of gold were sold between April 29 and May 2 in Hong Kong which left many physical dealers out of stock. The 30 tons of gold sold in that time frame was up more than 50% than was sold last year around the same time. Prices are still low so the yellow metal will continue to be bought up, especially by purchasers and investors in the Asian market.
Additional Interest Rate Cuts
Last week it was the European Central Bank cutting interest rates, but now we have interest rate cuts to report out of Australia, Poland, and now South Korea. It seems that whenever one large central bank makes a strategic move, other central banks fall like dominoes and follow these measures.
Australian officials cited a need to keep their economy strong and weaken their dollar as the reasons behind why they cut interest rates. These stories coupled with the fact that the USD index was higher in the morning on Thursday can be attributed to why gold has started out the second to last day of the weak in disappointing fashion. Though the price of gold has gained back a lot from its massive collapse a few weeks ago, the spot value for both gold and silver are still nowhere near what they once were. As of late, every time gold is approaching the $1,500 mark it seems as though the USD is strengthened which causes the yellow metal to take another dive.
Price Movement
Gold started out the week at about $1,471 and as of about 10am on Thursday it was down to $1,464 which isn’t too drastic of a loss but a loss nonetheless. Silver began the week at $24.20 and by Thursday it was down to $23.85. Both metals have great chances to rebound as there is still a lot of time left in the week to get their heads back above water.