The Daily Market Report: Gold Firms Modestly Amid Mounting Growth Risks

29-May (USAGOLD) — Gold is maintaining a generally consolidative tone heading into the weekend and the end of the month. A close above 1184.41 would result in the first measurably higher monthly close since January. The yellow metal closed higher in April, but by less than a dollar.

Q1 GDP printed negative in the second report, as was widely expected. Growth was revised down to -0.7% from the advance report of +0.2%. While inside the median expectations of -0.9%, that’s still a pretty bad number.

The drop in consumer sentiment seen in May was revised up to 90.7, versus a 88.6 preliminary print, but that’s still down from 95.9 in April. Chicago PMI came in much worse than expected, dropping to 46.2 in May, well below expectations of 53.0, versus 52.3 in April.

That’s the second sub-50 (contractionary) reading this year, which detracts further from the Q2 recovery scenario that many continue to espouse. That in turn, along with much of the recent data, detracts considerably from expectations that the Fed will hike rates this year.

Amid these rising growth risks, below objective inflation and a weaker labor market than the unemployment rate suggests, Minneapolis Fed President Narayana Kocherlakota suggested that a rate hike this year would not be consistent with the Fed’s mandates. I’m inclined to agree. If a rate hike is data dependent, the data simply don’t support tightening.

In fact, if future data becomes more suggestive of a recession, the Fed may have to loosen policy. With rates still at the zero-bound, such easing may require a return to QE. That would pull the rug out from under the dollar and push gold higher.