Gold is showing little movement in the Tuesday session, after falling 0.87% on Monday. In North American trade, spot gold trading at $1243.60 per ounce. On the release front, the current account deficit increased to $117 billion, but this beat the forecast of $124 billion. On Wednesday, the US will release Existing Home Sales and Crude Oil Inventories.
Is the US headed for another weak disappointing quarter? Last week ended on a disappointing note, as construction and consumer confidence reports missed expectations. Building Permits dropped to 1.17 million, its lowest level since August 2016. Housing Starts were also week, as the reading of 1.09 million marked the lowest since November 2016. There is concern that the soft construction numbers could weigh on second-quarter GDP. There was more bad news from UoM Consumer Sentiment, which dipped to 94.7 in May, marking a 7-month low. This is significant, as it is the indicator’s lowest reading since President Trump took office, and points to consumer unease with how the US economy is being handled. There are troubling signs that the June UoM report could be even lower, coming after the Comey testimony which has damaged Trump’s credibility even further. The labor market remains strong, but this has not translated into stronger consumer spending, which accounts for some two-thirds of economic growth.
As expected, the Federal Reserve raised rates last week, the second increase this year. What surprised the markets was not the rate move, but rather the upbeat tone of the rate statement. Fed policymakers noted that the labor market remained strong, and dismissed weak inflation levels as being temporary. On Monday, Federal Reserve of New York President Charles Dudley continued the upbeat message, cautioning the Fed against halting its current tightening cycle. Dudley said that the tight labor market should lead to higher wages, which in turn would push inflation to the Fed’s target of 2.0%. Gold is closely linked to interest rate movement, and dropped considerably after Dudley’s statement. If the Fed continues to send out a hawkish message, the odds of a rate hike in December (or even in September) are likely to increase, which could spell trouble for gold prices.
