Last week was full of important economic news, such as the July Beige Book or June CPI. Because of the recent development in the gold market, we did not yet have time to discuss them. What do these new pieces of information tell us about the U.S. economy and how can they affect the gold market?
Let’s start from the recent anecdotal Federal Reserve’s report on economic conditions in its districts. Although Cleveland, Kansas City and Dallas reported a decline in manufacturing activity, while there was only “modest wage pressures” in the U.S. economy, the report painted rather optimistic picture of the economy, especially compared to the previous issue (but the Philadelphia Federal Reserve’s index of business conditions declined to 5.7 this month from 15.2 in June). Now, all twelve Fed districts reported expanding economic activity from mid-May through June with the most optimism coming from Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco. The beige book is not likely to significantly affect the gold market, but it may provide some insight into the next FOMC meeting (expanding activity, but modest wage pressure).
The second important economic report released last week was the June’s Consumer Price Index, which increased 0.3 percent on a monthly basis and 0.1 percent over the last 12 months, the first annual increase this year. The core CPI, which excludes food and energy, rose 0.2 percent monthly and 1.8 percent on an annual basis, pretty close to the Fed’s 2-percent target. Although about two-thirds of the increase in the core rate was caused again by rising rents, the Fed may believe that inflation is going to move toward their target over their medium term. On the other hand, there are operating all the time some deflationary forces (this is why the commodity prices are falling again), partially due to debt overhang. Last month, import prices fell 0.1 percent in June with export prices down 0.2 percent, which clearly proves a lack of global pressures (stronger U.S. dollar should increase the export prices).
Regarding other interesting news, the University of Michigan’s gauge of consumer sentiment fell to a preliminary July reading of 93.3 from a final June level of 96.1, which does not bode well for future consumer spending, while June industrial production rose 0.3% in June after two month of declines. However, it fell at an annual rate of 1.4 percent for the second quarter of 2015.
To sum up, the incoming data on the U.S. economy is still mixed, however the anecdotal evidences from the beige book suggest that the economic activity is expanding, although the wage pressure remains modest. CPI inflation increased finally on an annual basis, however the deflationary forces are still operating. On balance, the recent news rather supports expectations of the Fed’s hike, which are negative for the gold price, even if the tightening is believed to be gradual.
If you enjoyed the above analysis, we invite you to check out our other services. We focus on the fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
Gold News Monitor
Gold Trading Alerts
Gold Market Overview
