On Wednesday, the November Summary of Commentary on Current Economic Conditions by Federal Reserve District, commonly known as the Beige Book, was published. What are the implications of this report and other recent U.S. economic data for the gold market?
This week was full of interesting data. Yesterday, we covered the October personal income and outlays report. Now, let’s analyze other economic news, starting with the latest Beige Book, which is a collection of anecdotes from business contacts in the Fed’s 12 regional districts.
The major information from the report is that the economy continued to expand across most regions from early October through mid-November. Moreover, labor market conditions tightened across most districts, with modest wage growth and slight upward pressure on overall prices. Hence, the report supports, slightly, the camp of the U.S. monetary policy hawks who want to raise interest rates in December. This is not good news for the price of gold. On the other hand, the report does not show any post-election euphoria observed in financial markets or in consumer sentiment.
Indeed, consumer confidence soared to 107.1, the highest level since July 2007. However, most of the consumers were surveyed before the election, so they cannot be tied to the outcome of the election. Perhaps, the boosted confidence was caused by the improving labor market conditions. According to ADP report, 216,000 private jobs were added to the economy in November, more than expected. Such an outcome may be a preview of today’s solid nonfarm payrolls. If the U.S. labor market continues to tighten, the price of gold could remain under downward pressure.
Other U.S. economic data are also quite optimistic. For example, the Chicago PMI surged in November to 57.6, the highest level in almost two years. The rise was much above expectations. Factory activity also improved, as the ISM Manufacturing Index rose to 53.2 percent in November from 51.9 percent in previous month, while construction spending increased 0.5 percent in October.
To sum up, the recent Beige Book and other economic reports were solid enough to support elevated expectations of a Fed hike in December. Therefore, the yellow metal should remain in bearish mode, unless today’s employment report turns out to be a negative surprise for the markets. Stay tuned!
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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