The Daily Market Report: Gold Slips as Dollar Firms Post FOMC, but GDP Disappoints


30-Jul (USAGOLD) — Gold began the New York session under pressure, weighed by a stronger dollar. The dollar had garnered that strength amid persistent expectations that the Fed remains on track for a rate hike this year.

The FOMC policy statement that came out yesterday was actually broadly interpreted as being more dovish than the previous. The committee members acknowledge ongoing concerns about weak inflation. The Fed said that its first rate hike in nearly a decade would be appropriate when they see “further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”

With commodity prices tumbling to multi-year lows and energy trending lower once again, there’s not much to suggest that inflation is going to turn around anytime soon. That’s going to make the September FOMC meeting particularly interesting.

The first look at Q2 GDP came out this morning at +2.3%, which was below expectations of +2.7%. While a miss, the financial press is touting the return to growth after the terrible Q1 number. However, thanks to some additional seasonal adjustment, growth no longer contracted in the first three months of the year.

Q1 was revised to +0.6% from -0.2% previously. Q1-2014 also got revised higher, from -2.1% to -0.9%. If you don’t like the negative impact that winter might have on growth, seasonally adjust it out in order to fit your recovery scenario.

While the adjustments erased the small Q1-2015 contraction and negated more than half of the larger Q1-2014 contraction, overall growth since 2011 was adjusted lower to 2.0%. That’s a pretty weak “recovery”. In fact it is the weakest “recovery” in 70-years.

Call me crazy, but it’s certainly not the sort of recovery that would typically inspire the Fed to start a tightening campaign. Beyond the weak growth though, we have continued weak inflation. The Fed must also factor in the risks of a potential hard-landing in China and the reality that the Greek crisis is far from actually being resolved.

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