The Daily Market Report: Gold Surges Above $1100 on Rate Hike Doubt, Softer Dollar
10-Aug (USAGOLD) — Gold surged back above the $1,100 level in U.S. trading on Monday, buoyed by persistent concerns about the absence of inflation and doubt about an impending Fed rate hike. The dollar index has retreated after failing to sustain gains above 98.00 last week, which leaves the highs from earlier in the year around 100.00 well protected.
Atlanta Fed governor Dennis Lockhart reiterated the dependency of the rate lift-off on incoming data, but added that there was no “foreordained date” for said lift-off. The failure of Lockhart to specifically mention September as still being a possibility for the first rate hike has heightened doubts about the timing.
The Wall Street Journal’s Fed watcher John Hilsenrath noted today that inflation expectations are falling once again. The Fed has said that they need to be reasonably sure that inflation is heading toward its 2% objective before they start raising rate. The Fed has consistently categorized inflation expectations as “well anchored,” but the latest erosion may suggest that is no longer the case.
This rise in uncertainty has to be unnerving to the large short position in the paper market:
Silver is up more than 50¢ on the day, a gain of nearly 3.5%. That puts silver at 4-week highs.
U.S. retail sales for July are probably the most important data out this week. Consensus is running at +0.6%, which would certainly be an improvement over the -0.3% seen in June. However, the NY Fed’s July survey of consumer expectations saw median household spending growth expectations fall to the lowest level since the inception of the survey in 2013. That sets up some downside risk for retail sales.
A big retail sales miss, could be the death knell for a rate hike this year. Much of the dollar’s rally, and the retreat in gold, is predicated on expectations that lift-off is imminent. If that suddenly proves unlikely, a big unwind could really put the squeeze on shorts in the gold market.
