Gold Up on Weak Retail Sales on Fed Day

December 14th, 2016 by

With all eyes on the conclusion of the Federal Reserve’s meeting this afternoon, the precious metals got a lift from weaker-than-expected retail sales data on Wednesday.

The spot gold price was about 0.45% higher during early trading, moving back up to $1,165 per ounce. Spot silver gained by about twice as much, adding nearly 20¢ to approach $17.15 an ounce. Platinum prices were also in positive territory, rising over 1% to about $950/oz, while palladium was mostly flat at $730/oz.

Fed Day

FOMC conference room (photo: Federal Reserve)

FOMC conference room (photo: Federal Reserve)

The broader markets are undoubtedly looking ahead to what the FOMC decides to do with its key interest rate, yet a quarter-percent (25-basis-point) rate increase appears to be a foregone conclusion at this point. Somewhat comically, the FedWatch tool administered by the CME Group—which is used to gauge the market’s expectations about where the federal funds rate will be in the future—shows virtual certainty that the FOMC will raise rates today, with the odds of such a move placed at 99.7%.

Given this degree of confidence in what the Fed will do, don’t expect a dramatic reaction from the financial markets following this afternoon’s decision. (Unless, of course, the central bank catches everyone off-guard by not hiking the fed funds rate.) The impact of the interest-rate bump is largely already baked into market prices. Perhaps more important will be Fed Chair Janet Yellen’s press conference at 2:30 pm EST. Since the decision should come as no surprise, the markets will be hanging on Yellen’s every word for clues about what the committee is planning to do in 2017.

Retail Sales

Data released on Wednesday show that the pace of retail sales growth in the U.S. eased up during November. The Commerce Department reported that retail sales only rose 0.1% last month. This was despite the fact that the wildly popular shopping holiday known as Black Friday (which basically encompasses an entire two-week period these days) happened during the month. It would seem that consumers dialed back their holiday shopping in the wake of the unexpected presidential election result. However, it’s clear that consumer sentiment has vastly improved as the notion of Donald Trump becoming president has begun to sink in with the public.

consumer-prices-CPI

Meanwhile, global stocks were almost universally in the red on Wednesday, but only marginally. Again, with so much expectation already placed on the Fed raising rates today, don’t anticipate many fireworks in today’s trading session absent some jarring statement by Yellen that throws more doubt into the equation.

The dollar fell slightly ahead of the FOMC decision, dropping about 0.2% on the DXY index. Rising interest rates generally portend a stronger dollar, which has been eroding some of the appeal for owning gold. The yellow metal did bounce back from its ten-month low, although gold ETFs notched their 23rd consecutive trading session of net outflows, its worst losing streak since 2013.

 

 

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.