Gold News Monitor originally sent to subscribers on June 22, 2015, 9:05 AM.
On Thursday, the May U.S. Consumer Price Index and June Manufacturing Business Outlook Survey for the Philadelphia area were released. What do they say about the U.S. economy and how can they affect the gold market?
According to the Labor Department, the U.S. Consumer Price Index rose a seasonally adjusted 0.4 percent in May. Consumer prices fell short of expectations at 0.5 percent, but still marked the biggest gain in more than two years. However, the increase just reflects a rather unsurprising jump in energy costs, as the gasoline index rose sharply by 10.4 percent. And the headline index remained unchanged over the last 12 months in May. The core index, which removes volatile energy and food prices, rose by just 0.1 percent, the lowest increase since December. On an annual basis, however, the core prices are up 1.7 percent, down from 1.8 percent in April, but still quite close to the 2.0 percent Fed’s target. Overall, the report was rather soft, since there were no clear signals of rising price pressures. The lack of such pressures gives the Fed more time before raising interest rates, which should be good news for the gold market.
Also on Thursday, the Federal Reserve Bank of Philadelphia published its most recent Manufacturing Business Outlook Survey. Manufacturing conditions in the Philadelphia area improved in June and rose to 15.2 last month, from a reading of 6.7 in May. This was the highest reading since December, in contrast to the last negative reading of the New York’s Empire State Manufacturing Index and the national technical recession. However, the current employment index fell nearly 3 points, to 3.8.
Earlier this week, the May numbers on building permits housing starts were published. The data on housing market was mixed, since privately-owned housing units authorized by building permits in May rose by 11.8 percent from April, while privately-owned housing starts in May decreased by 11.1 percent compared with April. Although building permits seem to be strong, investors should remember that the housing sector is moving to the very top of the economy. The permits were boosted mainly by multi-family apartments, not by single family homes. And from the historical perspective, the number of starts is anemic. What is important is that the GDPNow model forecast was revised by 0.1 percentage point after data on housing starts was released, since the U.S. Census Bureau reduced the forecast for real residential investment growth from 8.8 percent to 6.8 percent.
The key takeaway is that the Thursday’s benign inflation number shows that the Fed will be in no hurry to hike rates, which should be supportive for the gold prices. Although manufacturing activity in Philadelphia improved in June, the factory sector is subdued at the national level, while the housing market is still historically weak, weaker than the headlines would suggest. However, the crucial data for the Fed’s decision on a possible September rate hike and for the gold market will likely be the next reports on retail spending and payrolls.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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