Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Powell and Gold between Inflation and Global Slowdown

Commodities / Gold and Silver 2018 Nov 21, 2018 - 02:49 AM GMT

By: Arkadiusz_Sieron

Commodities

Powell is apparently between a rock and a hard place. Inflation surged, while the global economy slowed down. What will he do? And how will gold react?

Inflation Jumps in October

The consumer price index climbed 0.3 percent last month, after rising 0.1 percent in September, according to the U.S. Bureau of Labor Statistics. It was the biggest rise since January, and it was mainly caused by an impressive surge in the fuel oil (+3.7 percent) and gasoline indices (+3 percent). However, the core CPI, which excludes food and energy, also rose, advancing 0.2 percent in October, following a 0.1-percent increase in September.


Over the last 12 months, the consumer prices jumped 2.5 percent, compared to 2.3 percent increase in September. The rebound was mainly caused by a notably bigger increase in energy prices. Hence, the index for all items less food and energy climbed 2.2 percent, the same as last month, as the next chart shows.

Chart 1: CPI (green line, annual change in %) and core CPI (red line, annual change in %) over the last five years.

How do interpret this data? Well, the inflationary pressure intensified somewhat in October. However, the acceleration was mostly driven by large increases in energy prices. Which are quite volatile – as the next chart shows, the price of oil fell in November, which is likely to result in lower energy prices and softer pressure on inflation in the next month.

Chart 2: Gold prices (yellow line, left axis, London PM Fix, $) and oil prices (black line, right axis, WTI, $) in 2018.


Hence, we claim that the US inflation remains limited and the Fed is not likely to be worried about it. Given the recent pullback in oil prices, inflation is unlikely to rise much further from the current level, at least for now. Therefore, we expect the US central bank to continue its policy of gradually hiking interest rates. Rising rates should support the greenback, which is negative for the gold prices.

Global Economy Slow Downs

However, the Fed officials have made cautious comments recently. On Friday, both Fed Vice Chair Richard Clarida and Dallas Fed President Robert Kaplan raised concerns over a potential global slowdown.
The former said that the federal funds rate is close to being neutral, so the further increases should be more based on economic data, especially that global economy might slow down:

As you move in the range of policy that by some estimates is close to neutral, then with the economy doing well it's appropriate to sort of shift the emphasis toward being more data dependent (…) Going forward, you have to look at a lot of trends, including the global economy... Some of it is slowing.
 
Clarida’s remarks were first public comments since being confirmed in September, and they indicate that he might be less hawkish than Powell.

Meanwhile, Kaplan argued that the US economy would face headwinds next year as the big boost from fiscal policy (Trump’s tax reform and elevated government spending) would begin to fade. He also noted the global risks:

It’s my own judgment that global growth is going to be a little bit of a headwind, and it may spill over to the United States.

Powell seemed to be less worried about the US economy last week:

I’m very happy about the state of the economy right now (..) We’re in a good place, and I believe our economy can grow and grow faster.

And indeed, so far, so good. US industrial production inched up in October, while the retail sales surged last month. However, Powell acknowledged that the global economy was slowing and considered it as a concerning fact. If the global factors become an important concern for the FOMC, it may become more dovish, which could support the gold prices.

Implications for Gold

After recent comments from the Fed officials and reports on inflation, many analysts argued that Powell was between rising inflation and slowdown in global economy. However, that’s not accurate description. Inflation rose in October, but mainly because of jump in energy prices. The core inflation remains stable and the overall CPI may ease in the near future, given the fall in oil prices in November.

And although the Fed officials noted global slowdown, they still sounded upbeat about the US economy and called for gradual normalization of the monetary policy.

Hence, the conclusion is clear: do not expect higher gold prices due to the surge in inflation or dovish revolution within the FOMC. Actually, given the drop in oil prices and historically strong correlation between oil and gold (see Chart 2), we could rather expect downward moves in the yellow metal later this year.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in