Silver Soars as U.S. Economy Stumbles
Silver prices (and precious metal prices in general) have been soaring following the release of a large swath of weak economic data showing that the U.S. economy continues to falter. Or rather, that the U.S. has failed to gain traction for a long, long time.
Silver prices are up approximately 45% since the start of the year, trading near $20.00 an ounce. That’s impressive enough after silver prices experienced a record four consecutive years of declines. But silver prices have been surging over the last number of days on the heels of weak U.S. economic data. Since August 31, silver prices have advanced almost 6.5%.
In addition to weak second-quarter gross domestic product (GDP) growth of 1.2%, further signs of economic weakness in the world’s largest economy came from much weaker-than-expected U.S. Institute For Supply Management (ISM) non-manufacturing data.
The U.S. non-manufacturing purchasing managers index reading for August was 51.4 versus 55.5 in July. Over-optimistic analysts were expecting a repeat reading of 55.5. This represents the lowest reading in six years. (Source: “August 2016 Non-Manufacturing ISM Report On Business,” Institute For Supply Management, September 6, 2016.)
This follows downbeat U.S. jobs data for August, where just 151,000 jobs were added to the U.S. economy. Again, overly optimistic economists were expecting 180,000 jobs to be added. In keeping with the downbeat data, the U.S. Department of Labor also showed that wage growth slowed and that the unemployment rate stood firm at 4.9%. Overall, the underemployment rate continues to hover at around 10%. (Source: “Employment Situation Summary,” Bureau of Labor Statistics, September 2, 2016.)
Silver Climbs on Stagnant European Growth
Investors remain bullish on silver, not just because the world’s biggest economy is stumbling. The world’s biggest economy region is also on hiatus. European Union (EU) GDP growth has been stuck in a quagmire at around 0.5% for more than five years now. (Source: “Preliminary flash estimate for the second quarter of 2016,” Eurostat, July 29, 2016.)
Seasonally adjusted GDP increased 0.3% in the euro area and 0.4% in the EU-28 in July. In the first quarter of 2016, GDP was up by 0.6% in the euro area and 0.5% in the EU-28.
Yes, it’s all relative. In July 2016, EU GDP advanced 1.6% while EU-28 GDP was up 1.8%. In the first quarter of 2015, EU GDP rose 1.7% and EU-28 was up 1.8%. What we’re seeing is a contraction.
Taken together, this means there is virtually no chance that the Fed will raise its rates when it meets next in September. Those who have been reading these pages will know that we have been saying since January that the Fed will not raise rates again until early 2017 at the earliest.
The data simply doesn’t support any sort of rate hike. Raising rates prematurely, as the Fed did in December 2015, helped kick stocks over the edge in January. It doesn’t want to do that in the run-up to the presidential election.
As a result, silver prices will remain bullish for the foreseeable future.