Gold and silver have been on the decline for a majority of this week thanks to a surging US Dollar. Today’s European Central Bank meeting yielded a somewhat surprising outcome in that Europe’s key lending rate was reduced by a quarter of one percent.
A continued run of strong economic data out of the US has many people convinced that Quantitative Easing may still be wound down before the year’s end. Though it must be said that only a day ago the president of the San Francisco Federal Reserve bank stated that he thinks the FOMC needs to wait a bit longer until the US economy shows more reliable signs of strength.
ECB Meeting and Outcome
The focus of investors for a majority of the week was this month’s European Central Bank meeting. This meeting is the European equivalent of the United States’ FOMC meeting, which took place only about a week ago. In the days before the meeting, there were two overriding beliefs as to what the outcome of the policy meeting would be. One side believed that the ECB would cut its key interest rate in an effort to spur more consistent and robust economic growth, while the other contingent believed firmly that the ECB would retain their current rates.
As you might have expected, many were shocked when the announcement was made that the ECB had slashed its key lending rate by .25% to a new rate of .25%. When the news first broke, gold and silver made initial gains, though the subsequently declining euro currency prompted the US Dollar to rise in value which in turn put downward pressure on precious metals.
This news also has caused people to believe that the FOMC now has more time to decide what they will do with Quantitative Easing. At this point however, there are still a fair amount of people who believe QE will be tapered before the year’s end.
Strong Economic Data
In addition to the somewhat surprising outcome of the ECB meeting, some upbeat economic data was released out of the US today. Third-quarter GDP, on an annualized basis, had risen by a better than expected 2.8% margin. This is in comparison to 2%-2.5% market expectations in the lead-up to the report. This also gave the US Dollar strength and was seen as adversarial to precious metals.
Tomorrow will yield October’s employment report, which will be yet another sign of the US economy’s strength.