Gold News Monitor originally sent to subscribers on May 6, 2015, 7:42 AM.
The U.S. trade deficit exploded to $51.4 billion in March. What does it mean for the economy and the gold market?
The U.S. trade deficit surged by 43 percent to its highest level since 2008, according to official data. This was much more than the $41.7 billion estimated by the economists surveyed by the Bloomberg. It is extremely important, because imports, which rose by 7.7 percent, subtract from the GDP. Thus, with March’s trade deficit larger than expected, the pace of economic growth is likely to be revised down to zero or even an negative number. It means that the revised GDP estimate (scheduled to release this month) will probably show a contraction or at least stagnation.
The rise in imports partially reflects the end of the port strike on the West Coast which allowed piles of imported goods sitting at docks to be sent to U.S. customers. However, it does mean that the slowdown in trade was only transitory and we will see a significant rebound in the second quarter. Let us dig more into the numbers. Year-to-date, U.S. imports of goods and services actually decreased by 0.8 percent and were down almost 3.4 percent for the whole first quarter (on a quarterly basis). Let us repeat it: U.S. imports were down in Q1, despite the appreciating greenback, which caused foreign goods to be cheaper for U.S. consumers.
A perfect example may be imports from the European Union, which peaked in June 2014, when the U.S. dollar began to surge, and since then are declining. It reflects the slowdown of the economy and lack of demand for global goods, despite the stronger greenback. The exports statistics are much worse. According to Jeffrey Snider, exports to Europe declined by 1.5 percent in March, while exports to the rest of world decreased for the third month in a row. They fell by 6 percent, which is a worse number than in November 2008. As we wrote in the last Market Overview, it signals a weak global trade environment, which should be positive for gold.
Summing up, the U.S. trade deficit surged in March due to a rise in imports. However, the long-term trend and economic outlook remain negative, since imports should be boosted by the stronger greenback. The reason why this did not happen may be that the appreciation of the U.S. dollar indicates a global slowdown (and flight to safety) rather than a healthy U.S. economy. The weak global trade and economic activity should be positive for the gold prices.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
Gold News Monitor
Gold Trading Alerts
Gold Market Overview
