The Daily Market Report: Gold Dips Within Range as Inflation Remains Tepid
22-May (USAGOLD) — Gold remains generally consolidate above the $1200 level. The yellow metal retreated from overseas gains, leaving the three-month high set on Monday at 1232.41 protected for the time being.
Gold retreated intraday after a bigger than expected uptick in core inflation. Inflation, excluding food and energy, rose 0.3% in April. That was just above expectations of 0.2% and was largely driven by housing and healthcare costs. While the year-on-year pace of core inflation held at 1.8%, gains since the beginning of the year suggest inflation may finally be heating up.
But wait you say! Inflation tends to have a positive influence on gold. That is very true, but the initial reaction to U.S. economic data these days always centers on how the Fed will react: Higher inflation may prompt the Fed to hike rates sooner rather than later.
As we noted in yesterday’s DMR, there is some rising concern that the 2% inflation objective is not high enough. After all, the Fed has exploded their balance sheet by more than $4 trillion dollars and inflation remains below target.
PCE inflation (Fed’s preferred measure) as of March was a mere +0.3% y/y. The April data come out June 01 and consensus is running around unchanged. I therefore continue to believe there is little incentive in the growth, employment or inflation data to warrant a rate hike any time soon. That should continue to underpin the gold market.
In a speech today, Fed chair Yellen reiterated that she believes the Q1 weakness was “transitory.” She went on to acknowledge that the more recent data have been “disappointing,” but apparently still believes a rate hike this year would be “appropriate”
- if
the economy continues to improve.
Continues to improve? From what benchmark?
Yellen is a smart woman, so I don’t think she’s delusional. I think she is following the lead of her predecessors at the Fed and being purposefully opaque; feeding the policy hawks and keeping investors from making big bets one way or the other in these precariously overpriced stock and bond markets.
