Retail sales rose 0.6 percent in September. What does it imply for the Fed policy and the gold market?
Sales at U.S. retailers increased 0.6 percent last month, according to the U.S. Department of Commerce. The rise followed a 0.2 percent decline in August (after a revision from -0.3 percent) and was in line with expectations. On an annual basis, retail sales rose 2.7 percent, at the same pace as retail sales excluding motor vehicles and parts dealers. As one can see in the chart below, the annual pace of growth of this core version of retail sales accelerated from August.
Chart 1: Retail and food services excluding motor vehicles and parts dealers as percent change from year ago, from September 2011 to September 2016.
Therefore, retail sales rebounded in September after a weak August, which signals that consumers are still spending enough to support steady economic growth. However, the report may be not as positive as it seems to be at first glance. The GDPNow model forecast for real GDP growth for the third quarter of 2016 dropped from 2.1 percent to 1.9 percent after the release of data on retail sales. Despite this decline, the market odds of at least one Fed hike through December increased from 65.1 percent to 69.5 percent. Hence, it seems that the Fed convinced the market that it will finally hike rates in December, despite a slowdown in GDP growth.
The key takeaway is that retail sales rebounded in September, but the GDPNow model had anticipated a better number, so it lowered its forecast for real GDP growth for the third quarter of 2016. However, what really counts now is that the underlying trend in retail sales will not stop the Fed from raising interest rates in December. This is bad news for the yellow metal and it probably explains why the price of gold declined initially after the release of the report.
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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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