Global Precious Metals MMI® Increases, Interest Rate Rise to the Rescue?

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Bolstered by a weaker dollar, global precious metals rose last month as industrial demand for palladium was finally joined by higher gold bullion and platinum prices.

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The number of Americans applying for first-time unemployment benefits inched up by 3,000 to a seasonally adjusted 265,000 in the week ended May 2, the Labor Department said recently. This was less than the 275,000 economists predicted and within reach of the unrevised 262,000 level for the prior week—the lowest since 2000.

This is the latest sign that an interest rate hike may come from the Federal Reserve as continued improvement in the US labor market might clear the path for rate hikes.

How High Will They Go?

Once the Fed starts the cycle of interest rate increases, the market can focus on how high the rates may rise, which will be less of a weight since the expectation is that rates won’t rise very much. Higher interest rates are bearish for gold because they give investors a reason to move money into investment vehicles that produce a yield. Gold has no yield.

End of the Stock Supercycle

There is also rampant speculation that a combination of downward earnings revisions and the difficulty of the banking system to turn bank reserves into money growth will lead to a large correction in the stock market. Precious metals are also a hedge against falling stocks.

The monthly Global Precious Metals MMI® registered a value of 84 in May, an increase of 1.2% from 83 in April.

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