dollar-rally-inflation

Gold Prices Fall on Encouraging Data

October 14th, 2016 by

Measures of retail sales and wholesale prices came in better than forecast on Friday morning, adding to the downward pressure on gold prices from the stronger U.S. dollar.

In early trading, spot gold fell $5 per ounce to about $1,253/oz, threatening to fall below the key resistance level of $1,250/oz. The spot silver price, meanwhile, was just 4¢ per ounce lower at $17.43/oz.

As for the other precious metals, the platinum price continued its decline, but only by a meager 0.1% to $933/oz. Spot palladium was just above unchanged at $640/oz.

Upbeat Data

dollar-rally-inflationThe retail sales numbers for September were a welcome sign from a consumer spending perspective. The measure rose 0.6%, which was in line with what a consensus of analysts expected. This was the biggest jump in U.S. retail sales in three months. Perhaps more importantly, the gains were broad-based: 10 out of the 13 retail categories, including automobiles, restaurants, and furniture, showed solid increases according to the Commerce Department.

The 0.3% decline recorded in August was revised slightly upward to -0.2%. One area of slight concern was the fact that the core sales figure—which strips out auto, gas, and construction materials—was only 0.1% higher, well short of the 0.4% increase that was predicted. By most accounts, this modest weakness won’t be enough to stop the Federal Reserve from raising interest rates in December. (Almost nobody expects a move in November.)

In addition to the retail sales data, wholesale prices also rose as measured by the producer price index (PPI). The 0.3% gain was the first positive reading in three months. While core PPI was also up 0.3%, this gauge from the Labor Department rose 1.5% year-on-year. Looking back over the last 12 months, this represents the best one-year acceleration of PPI since late in 2014.

Most observers are taking this as a sign that inflation may be gradually moving toward the Fed’s 2% target. The big leader was a rise in energy costs thanks to higher oil prices; energy prices were 2.5% higher when compared to last month.

All of this data helped lift the dollar from its minor decline on Thursday. The DXY index registered 0.36% higher on Friday morning, just shy of 97.9. This largely accounts for the lower gold price.

Earnings Season Continues

Wall St opened in the green following a week spent in negative territory as many U.S. firms are concerned that the stronger U.S. dollar will weigh on their overseas profits. Corporate earnings are beginning to be reported for the third quarter. Many of the financials are surprising the markets with their own upbeat reports. Citigroup (C) exceeded estimates of its Q3 profits thanks to a surge in its bond and currency trading operations.

Even more surprising, Wells Fargo (WFC) beat earnings expectations with a reported $22.3 billion in revenues and a robust $1.03 earnings per share (EPS). This came in spite of the bank’s very public scandal involving unauthorized customer accounts. Wells Fargo also announced that its CEO John Stumpf would be leaving the firm and would not receive any bonus.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.