This week was positive for Gold and Silver, while the U.S. stock market suffered sharp losses after a good start on Monday. Economic data coming out of the U.S. along with the jobs report maintained positive momentum. However, economic data coming out of the Eurozone, especially Germany continued to paint a dismal picture. The declining European economy is not new information, but it was as if this week the light went on and the revelation we learned back during the Great Recession hit home…we live in an interconnected global economy. Lighting quick global communications fosters a world where geopolitical, economic and Black Swan events eventually affect everyone. No country exists in isolation. The FOMC minutes released on Wednesday showed concern, that a declining European economy could put the brakes on U.S. growth.
It is rare that the minutes of FOMC meetings reveal information that rises to the level of surprising, but Wednesday’s release can be considered no less than surprising. Despite this, there is still a great deal of debate within the Fed as to when to raise interest rates. Perhaps they will not be raised as quickly as the market has grown to expect. Gold and Silver prices shot up on the news, but surprisingly, U.S. stocks did not. Normally stocks would rise in this scenario, so why not now? Because much of the Fed concern was the rapidly deteriorating global economy and it’s potential to affect the U.S. recovery.
The Fed is not the only organization concerned about global growth. The International Monetary Fund (IMF) projections that came out on Tuesday caused stocks to slide and Gold and Silver to go up. Gold traded higher Tuesday as investors sought the safe-haven appeal of Precious Metals following a report by the IMF that cut its global growth forecasts. “Following yesterday’s rally, traders are in a wait-and-see attitude now after the IMF lowered world growth and issued some market risk warnings,” RBC Capital Markets Vice President George Gero said. With Gold recently dipping below $1,200 per ounce, physical buying demand has increased both domestically and abroad, lending support for the yellow metal this week.
To close out the week, Jim Grant, founder of Grant’s Interest Rate Observer stated that the Federal Reserve needs to return interest rates to more normal levels and free the financial markets from government sponsored price controls. “The real value of asset prices would come in “clearer focus” if rates were not so artificially low, Grant said on CNBC’s “Squawk Box” Friday. This comes a day after the Dow Jones industrial average dropped by 334 points, something that has not happened since February. “Interest rates now are not discovered as one discovers prices in a free market. They are administered and imposed,” Grant said.