This week we saw precious metals, particularly gold, fall as the Federal Reserve board looked increasingly hawkish about finally raising interest rates significantly by December. They really mean business this time!
The strong dollar has been causing metal prices to fall for the last two months, but this week it hit a seven-month high. If the dollar was Nickelback, precious metals would be Bon Jovi. When investors put their money into the metal, itself, it directly affects the value of the dollar, a commodity that’s merely a certified paper version of the valuable metal and, in this case, vice versa. Why is the dollar riding so high? The rally is based, partially, on those hawkish Fed governor comments. But there’s another reason…
The U.K. and E.U. Can’t Stop Their Brexit Bickering
Yes, the nation that brought you “Fawlty Towers” and “Monty Python’s Flying Circus” is punking its soon-to-be-former European Union partners by drawing up lists of what it gets in the divorce and generally demanding access to the Europe’s single market when it finally leaves.
Other European leaders are rattling the sabre right back and threatening punitive sanctions and zero access to the U.K. once it leaves. French President Francois Hollande seems to be leading the charge but, honestly, most French people would gladly give the U.K. anything it wants if they’d simply promise to take Hollande off their hands. He’s seriously the most disapproved of president in French history.
This has to do with metals because the back-and-forth finally resulted in a flash crash in the pound’s value and that dragged the Euro down against the dollar, too. Here in the U.S. our presidential election has turned childish bickering into somewhat of an art form. Nice that the Europeans have taken notice and are trying the same. It’s helping to boost the dollar.
Alcoa’s Last Stand (Kind of)… As One Company
Meanwhile, Alcoa (NYSE:AA), Inc., will be splitting itself in two next month. The company reported disappointing earnings in its last earnings season kickoff report as a unified group. A spin-off will take its aerospace and automotive metals business into a new direction while leaving its money-losing primary aluminum smelting business gets to… still smelt.
Anyway, the company posted a higher third-quarter profit, but revenue fell and that discouraged investors who punished the company’s stock. I bet the titanium and nickel-alloy business unit members of Alcoa thought to themselves, “not my problem anymore.”
by Jeff Yoders