The current state of the precious metals market can provide strong clues about the overall state of the economy. Whether you invest in bullion or not, you can learn a lot by keeping track of the precious metals market. In the last few years, prices have fluctuated wildly. This has mostly been caused by the poor state of the world economy. When times are good, prices tend to hold a lot steadier. 2013 is already shaping up to be an interesting year, and a lot hinges on a handful of reports and events that will be taking place in the next few weeks.
The Fiscal Cliff and its Impact on Precious Metal Prices
Investors were on pins and needles as 2012 drew to a close. Congress didn’t reach a compromise about the so-called fiscal cliff until the last possible second. Not surprisingly, this eleventh-hour deal had an impact on the prices of gold, silver and other precious metals. They were all over the place as the year drew to a close, and they continued to fluctuate wildly during the first few days of 2013. Whether this means that they will continue their rollercoaster-like patterns remains to be seen.
The fiscal cliff was technically averted, but it wasn’t resolved once and for all. The issue will come to a head again in the spring. In the meantime, few investors will breathe easy. There is too much at stake. Many people face major tax increases depending on how the issue is resolved. Those who are worried about having to fork over more taxes may be reluctant to invest heavily in precious metals, so volume could drop. If that comes to pass, prices could take a major nosedive as well. Of course, it’s technically possible that the fiscal cliff issue could be put to bed ahead of time, but it’s very unlikely.
Gold and Silver Prices Up This Week
As foreboding as the looming fiscal cliff may seem, gold and silver prices managed to increase a little during the second week in January. As anyone who watches the precious metals market can attest, however, a single week doesn’t mean a whole lot. By this time next week, prices could be dropping again. Due to the constant fluctuations that have become par for the course, there is just no way to be certain whether a long-term pattern is in the works or not.
Precious metals rose sharply in price during the last week or so in general. This increase coincided with the increase in the value of the euro, so it’s possible that the euro is at least partially responsible. Of course, the main reason that the euro rose in value was because of the ECB’s decision to keep its rate unchanged, as was reported by Lior Cohen of Seeking Alpha. This is just one example of how a single development in the world can have ripple effects on many other facets of the economy. If the euro’s rate had been changed, its value could have dropped. The value of precious metals could have dropped too.
The Economy of China
One thing that is keeping investors on their toes is the Chinese economy. A report about the state of the Chinese economy is expected imminently, and its findings are sure to have a major impact on the economy. If the economy of China is found to be expanding even more rapidly than expected, it could have a very positive impact on the prices of gold, silver and other precious metals. If the Chinese economy is found to be growing more slowly than expected, prices could drop precipitously.
The Indian Rupee
Another example of how developments around the world can impact gold and silver prices involves the price of the Indian rupee. Fluctuations in the value of the rupee can have a direct impact on the value of gold. Lately, the Indian rupee has been gaining ground versus the U.S. dollar. If this trend continues, demand for gold is sure to skyrocket. In turn, gold prices should rise as well. If nothing else, a rise in value of the Indian rupee should stall any drops in value that are caused by other events.
If one thing is currently causing excitement in the investment world, it’s the upcoming speech by Ben Bernanke, the chairman of the U.S. Federal Reserve. Speculation about what Bernanke will say is rampant, but no one is quite certain how his speech will unfold. There is a strong possibility that he will recommend putting an end to all QE programs, which could affect the precious metals market very negatively. A variety of issues are expected to be covered in this highly anticipated speech, and raising the debt ceiling is just one example. A lot hinges on what Bernanke says and how investors take it.
Even if popular predictions come true and Bernanke unequivocally states that all QE programs must be exited immediately, there’s still a chance that the precious metals market could be largely unaffected. That’s mostly because there are so many other factors at work in the world too. If the Bernanke speech was the only major thing happening in January, gold and silver prices would almost certainly respond accordingly. As evidenced by the other topics that are covered in this article alone, however, many other things are unfolding that could affect gold and silver prices in other ways.
The U.S. Economy
Is the U.S. economy finally in recovery mode? Many people believe so, but it should become clearer as the year progresses. Hopes are high, but various reports that are due any time will confirm whether this is the case. For example, a report about U.S. housing starts will give a clear idea about whether the real estate market is truly turning around or not. If it is, the rest of the economy is likely to follow suit. If it isn’t, all bets are off, and the economy could remain stagnant for a long time to come.
Jobless claims provide a clear picture of the current state of the economy, but they aren’t all that matters. The news this week was discouraging: Jobless claims rose by 4,000 from the previous week. This report caused a drop in the value of the U.S. dollar, and gold and silver were affected too. The Philly Fed index, which is another highly anticipated report, could very well show signs of an improving economy. If it does, it would be positive news that could help bring up precious metals prices and set them on a long-term upward trajectory.
Trading Precious Metals in 2013
Uncertainty is casting a big cloud over 2013 so far, but that doesn’t seem to be holding back precious metals investors. If some of the most important indicators continue to show signs of growth, there’s a very good chance that gold and silver prices will climb steadily as the year progresses. Before investing in precious metals, it’s crucial to find a reliable source of information. Reputable sources like Monex should be used to keep tabs on the current state of the precious metals market. The savviest and most successful investors stay continually updated about the precious metals market and about the world economy as a whole.