Gold and silver futures both climbed on Friday, reacting to new information that showed a decreasing pace of economic growth in the U.S. According to gross domestic product data released by the Department of Commerce, the economy continued to expand - growing at an annual rate of 2.4 percent in the second quarter - but did so at a slower pace than the 3.7 percent annual rate seen in the first quarter of 2010.
Both quarters were disappointing compared to last year's GDP growth rate of 5 percent.
The news made it a promising day for the precious metals sector. The price of gold climbed almost .9 percent to $1,181.60 per troy ounce, while silver staged an astonishing surge of nearly 2.5 percent, past the $18 mark to trade at $18.05 per troy ounce.
Of the two, the general perception is that gold represents the more traditional haven asset when times are bad. However, some big ETFs and hedge funds have sold off gold recently, giving physical buyers some breathing room to move into the market and snatch up bullion at relatively discounted prices.
The demand for silver may also be driven by investors looking for a cheaper inflation hedge than gold, or by traders trying to walk a middle ground. Silver, after all, is split much more evenly than gold between those who use it as an investment and industrial consumers like the flat-panel television and solar module manufacturers.
As far as the economic fundamentals go, the problem lies with the persistent unemployment, which is sapping consumer confidence and bleeding the real estate markets dry. Without sustained job growth for several quarters, the U.S. economy will continue to limp along, wounded but not mortally so.
The fear of worsening conditions, which could bring back the specter of a double-dip recession, has some members of the Federal Open Market Committee pondering quantitative easing measures to pump liquidity back into the system.
In trying to avoid deflation, however, the Fed could drive straight into inflation. The consumer price index has risen 1.1 percent since June 2009 on a non-adjusted basis. That's quite a low rate, but it could easily be ratcheted up if the vast oceans of capital the Fed has pumped out start leaking out of the banks' coffers where they are locked up.
