Weak Economic Indicators Bolster Precious Metals

An unexpected increase in initial claims for jobless benefits as well as a plunge in the Philadelphia Federal Reserve’s index of regional manufacturing enhanced fear in the overall strength of the U.S. economic rebound causing investor’s to turn to precious metals.

According to the Labor Department, the number of people filing new claims for jobless benefits rose by 12,000 to a seasonally adjusted 472,000, raising significant concern that hiring is lackluster and slow economic growth is in the near future.  This increase in new filings raises concerns that June may snap a five month streak of increased employment in the private-sector.  To make things even more challenging, the Labor Department also reported that the economy generated a mere 41,000 private-sector jobs in May as compared to 218,000 in April.  As for relief in the labor markets, it isn’t expected to prevail until sometime in 2011.

To further put a damper on the health of the economy, the Philly Fed said that although manufacturing continued to expand, it did so at a much slower rate than in May.  The index dropped from a 21.4 in May to an 8, suggesting that a recovery in one of the strongest parts of the economy is fading. 

Lastly, the U.S. trade deficit rose to its highest point in more than a year.  The Commerce Department said that the deficit in the current account increased to $109 billion in the first quarter, illustrating that imports continue to exceed exports.  This imbalance, which carries trading costs, could put a strain on the U.S. dollar, which added further fear in the markets.

 A combination of these two forces sent gold to a record high close of $1,248.70 per ounce and other precious metals followed close by.  The SPDR Gold Shares (GLD) closed at $121.90 on Thursday gaining nearly 1.3%, the iShares Silver Trust (SLV) gained nearly 1.4% closing at $18.33 and the PowerShares DB Precious Metals (DBP) added nearly 1.2% closing at $42.39 on Thursday.

As for the future of precious metals, it remains shiny as economic worries around the world continue to prevail and risk-averse investors seek safe haven choices.

When investing in the aforementioned precious metal funds, it is equally important to consider the inherent risks that are involved.  To help mitigate these risks the use of an exit strategy which identifies specific price points at which an upward trend could come to an end is of importance.

According to the latest data at, these price points are as follows: GLD at $116.92; SLV at $17.54; DBP at $40.50.  These price points fluctuate on a daily basis and are reflective of market volatility.

Disclosure: Long SLV and DBP

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