What's Driving Precious Metals - Weekly Economic Analysis for January 8 - 12, 2018

By: Treasure Coast Bullion Group - 

  • Gold prices are trying to break out of a bull flag continuation pattern, as a weaker dollar is paving the way for a rise in the yellow metal. 
  • Inflation gauges released by the U.S. government show pricing pressures are subdued, despite recent energy and wage gains. 
  • The inflation component of the retail sales showed that hourly earnings increase by 0.4% in December.

Gold prices are trying to break out of a bull flag continuation pattern, as a weaker dollar is paving the way for a rise in the yellow metal.  Gold prices are quoted in dollars, and with all things being equal, a decline in the dollar makes gold prices less expensive in other currencies, buoying its price in dollars. Weaker than expected wholes and retail inflation levels reported in the U.S. this week, were the catalyst that helps buoy gold bullion and silver bars.  With prices ready to test the 2017 highs at $1,352, now is the time to diversify your portfolio and purchase silver coins or gold bars.

On Friday the dollar index tested support levels near 91.25, led by a breakout in the EUR/USD currency pair. The Euro is benefiting from better than expected economic data reported this week and commentary from European Central Bank authorities who are clamoring for a change in their forward guidance. Many members, especially central banker from Germany, believe that European interest rates are too low, and should be normalized.  The market has started to price in this eventuality, but increasing European rates relative to U.S. interest rates which are buoying the dollar and elevating gold coin and silver bullion prices.

U.S. Inflation is Subdued

Inflation gauges released by the U.S. government show pricing pressures are subdued, despite recent energy and wage gains.  January data, might not be as friendly, but for the moment, the data points to subdued inflation.  Earlier in the week, the Labor Department reported that December Producer Prices (PPI) was down 0.1% month over month. On Friday the Labor Department reported that U.S. CPI inched higher by 0.1% in December with the core rate, which excludes food and energy increasing by 0.3%. There was no revision to the November data, which allowed the annual 12-month rate to slow to 2.1% year over year versus 2.2% year over year in November. This level is a hair above the Feds target level of 2%, which should keep expectations that the Fed will hike interest rates in March intact. Commodity prices, weighed on inflation in December, but this will not be the case in January as crude oil touched $64.50 per barrel rising to a 3-year high.

Retail Sales Rose in December

The holiday season was favorable, providing the backdrop for a rise in December retail sales which increased by 0.4% on a headline basis as well as excluding autos.  There was an upward revising to the November headline number to 0.9% from 0.8%, and a 0.2% gain in October. There were positive revisions to the November ex-auto number as well, with November increasing by 0.3% to 1.3%.  Vehicle sales increased in December by 0.2% after falling in November. There was a robust increase in non-store retailers which saw a headline gain of 1.2% from a revised 4.2% in November.  The inflation component of the retail sales showed that hourly earnings increase by 0.4% in December.

 

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