The Daily Market Report: Gold Pressures $1200 as Dollar Retreats on Trade Deficit Explosion


05-May (USAGOLD) — Gold extended to the upside, approaching the $1200 once again. The yellow metal was buoyed after and explosion in the trade deficit caused the dollar to retrace recent upticks.

The trade deficit surged by more than 40% in March to a 6-year high at -$51.4 bln, versus -$35.9 bln in February. That was much bigger than the expected -$41.2 bln.

According to the ZeroHedge blog, the trade deficit excluding oil “just crashed to $43.7 billion, the worst print in the history of the series.” That’s really bad news, which ZeroHedge suggests could be a precursor to the Fed having to jump back on the debt monetization band wagon.

…the US will soon have to import more oil which will require more debt issuance to fund the soaring trade deficit which will require more QE to monetize the deficit.

And thus the stage is set for QE4. — ZeroHedge

Fresh downward revisions to Q1 GDP were quick to follow. The advance report from last week was pretty dismal, showing a mere +0.2% growth in Q1. Some of the revisions inspired by more recent data have pushed expectations into negative territory. BofA is just one example: They cut their Q1 forecast from +0.1% to -0.5%.

Despite persistent cheer-leading about an impending recovery in Q2, the Atlanta Fed’s GDPNow model suggests a still weak +0.8% for Q2. That leaves us pretty vulnerable to a recession if weakness in the data persist.

Of course the strength in the dollar is largely to blame for the collapsing trade balance. In an event to avert continued sluggish growth, and perhaps even a recession, the Fed should start hinting very overtly that rate hike plans have been shelved. That would likely trigger further retracement in the greenback, which should underpin gold.

Bloomberg reports today that the Greek government has said that a compromise with its creditors is not possible under the current conditions. It looks like both the IMF and the EU expect Greece to live up to its previous commitments.

The Tsipras government may view that as a nonstarter. The latest — and probably meaningless — “deadline” is apparently 12-May.

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