What's Driving Precious Metals - Weekly Economic Analysis for Jan. 22-26, 2018

By: Treasure Coast Bullion Group - 

  • Gold bar and silver coin prices whipsawed during the later part of this week, as trader’s absorbed ECB monetary policy, the Whitehouse’s commentary on the dollar and economic data that was mixed.
  • ECB kept rates unchanged but commentary was hawkish
  • Durable goods was stronger than expected
  • The trade deficit continued to widen

Gold bar and silver coin prices whipsawed during the later part of this week, as trader’s absorbed ECB monetary policy, the Whitehouse’s commentary on the dollar and economic data that was mixed. Precious metals prices were in the process of breakout until President Trump through a monkey wrench into the trend.  The first look at Q4 GDP came in weaker than expected but personal consumption was the highest in a decade.

Gold bullion prices surged above $1,360 tumbled from $1,363 to $1,341.50 following comments from president Trump, who said “the dollar is going to get stronger and stronger, and ultimately, I want to see a strong dollar.” The dollar did get stronger, following these comments sinking gold prices. Since then, the greenback has edged lower again, allowing gold to climb back the 1,350 region. Further greenback losses may be in the cards going forward, as U.S. protectionism concerns remain, and as the global economy continues to improve, in Europe.’

The ECB Kept Rates Unchanged but Commentary was Hawkish

The ECB kept its monetary policy stance on forward guidance unchanged, with Draghi still insisting that the QE program can be extended in size and duration. This is a strategic move to present the phasing out of net asset purchases over the last quarter of the year, favored by the doves, as the compromise option going forward.

Draghi tried his best to play down any changes to the ECB's stance and was very eager to stress that the guidance was pretty much left unchanged, compared to the December meeting. The current QE program with net asset purchases of EUR 30 billion per month until the end of September, was confirmed.

The problem for Draghi is of course that while he insists on keeping the possibility of another QE program in place to strengthen his hand in the internal ECB discussion, markets are not really buying into that possibility and that also means there is the risk that Draghi loses credibility and his ability to talk markets down, especially if confidence indicators continue to surge higher. This will weigh on the dollar and buoy gold bar and silver coin prices.

Durable Goods Was Stronger than Expected

Economic data was mixed. U.S. Advance durable goods orders climbed 2.9% in December, almost three times expectations, after the 1.7% bounce in November. Transportation orders were 7.4% from 4.6% which was revised from 4.1%. Excluding transportation, orders were up 0.6% from 0.3%. But, nondefense capital goods orders excluding aircraft fell 0.3% versus a 0.2% gain previously.

Gross Domestic Product (GDP) was Slightly Disappointing

U.S. Q4 GDP grew at a 2.6% pace, which was a little disappointing, after a 3.2% clip in Q3 and 3.1% in Q2. On a 12-month basis, growth accelerated slightly to 2.5% year over year versus 2.3% year over year. Additionally, consumption growth increased at a solid 3.8% after the prior 2.2% rate. Business investment was up 7.9% versus 2.4%, supported by an 11.6% pop in residential spending from -4.7% previously and a 6.8% gain in nonresidential spending from 4.7%. Government spending increased 3.0% after the 0.7% previously, with the Federal side up 3.5% and state and local 2.6% higher.

The Trade Deficit Continued to Widen

U.S. Advance goods trade deficit widened to -$71.6 billion, the widest since July 2008, versus the revised -$70.0 billion which was -$69.7 billion. Goods exports were up 2.7% to $137.6 versus the 3.3% gain to $134.0, while imports increased 2.5% to $209.2 billion versus the prior 3.0% gain to $204.0 billion. Advance wholesale inventories were up 0.2 to $611.4 versus the 0.7% gain to $610.2 billion. Advance retail inventories rose 0.2% to $620.4 billion after edging up 0.1% to $619.0 billion.


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