What’s the difference between the Supply and Demand Report 1 November and the Supply and Demand Report 8 November? Just a minor punctuation change. Last week, we asked (rhetorically) if silver would have a 14 handle again.
This week, the market answered. Why yes, yes we can!
Silver closed the week, trading at $14.78. This is down $0.76 from last Friday and almost 20 cents under our fundamental price from that date. The price of gold also dropped, $52. This is quite a discount to what we calculate as its fundamental price.
So what happened? It’s always a challenge to explain a market price move in terms of a concurrent or preceding event, and financial reporters get it wrong all the time. In this case we feel pretty confident that the driver was the nonfarm payroll report, as the price of gold plunged about $15 within a minute of the release of the data on Friday.
Why? What has the payroll data got to do with the price of tea in China or the price of gold in New York? Traders (likely not hoarders, but speculators) are trying to figure out if the Fed will: (A) cut interest rates, (B) hold them steady, or (C) hike them. If they are to hike, then everyone wants to know when. Since the Fed has said it wants to see full employment as one measure of a recovery before risking a rate increase, the market looks to the Bureau of Labor Statistics for hints.
Such is life in a centrally planned world, where the most important price of all—the price of money—is administered.
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