The Daily Market Report: Gold Charges To 5-Week Highs Following Retail Sales Miss

13-May (USAGOLD) — Gold surged back above the $1200 in early New York trading, boosted by continued weakness in U.S. retail sales in April, which pushed the dollar lower. The yellow metal pushed above resistance at 1215.06 to set 5-week highs.

Retail sales showed no growth April, undermining expectations of a spring rebound after another harsh winter in the northeast was blamed for slumping sales. This does not bode well for a Q2 rebound in GDP and heightens concerns that we are heading into another recession.

Heightened growth risks also further reduces the likelihood that the Fed will raise rates this year. The dollar index fell to a 3-month low on the heels of this morning’s data.

The ongoing absence of inflation will undoubtedly factor into the Fed’s decision making process. Both U.S. import and export prices fell in April. In fact, the Wall Street Journal noted that the last time import prices rose was June 2014, just about the time the dollar rally commenced.

If another recession is in the cards, and we are past due from a cyclical standpoint, one has to wonder how the Fed might react. HSBC chief economist Stephen King is understandably worried, pointing out that in the years since the last recession, the Fed (and other central banks for that matter) have failed to replenish their “traditional policy ammunition.”

In other words, with rates still at zero, their only options lie in unconventional policy: Negative rates and QE. One however could reasonably argue that the unconventional has become pretty conventional in the years following the global financial crisis.

“Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery — both in the US and elsewhere — has been distinguished by a persistent munitions shortage. This is a major problem. In all recessions since the 1970s, the US Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out.” — HSBC chief economist Stephen King

Yeah, the Fed can’t really cut 500 bps from here can they . . . What they can do is cut rates into negative territory — as some central banks have already done — and/or they can launch QE4. Instead, the market continues to talk about when the Fed might tighten. When reality strikes, gold is likely to benefit greatly.