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Gold continues to trade in a choppy manner within the range
established early in the week. In light of some better than expected U.S.
data this morning, the yellow metal is showing good resilience.
U.S. retail sales rose 1.3% in April, well above expectations of +0.8%. Not
surprisingly, we are already seeing some upward revisions to Q2 GDP
forecasts. The preliminary read on consumer sentiment jumped to 95.8 in May,
above expectations of 90.0, vs 89.0 in April.
However, the stock market is less than impressed. The same is true of the
bond market. The prospect for a rate hike late in the year, based on Fed
funds futures, improved modestly. While the dollar did seem to like the news,
as previously noted gold remains underpinned as is trading higher on the day.
Perhaps markets are putting greater emphasis on this morning's business
inventories report for March, which rose 0.4%, above expectations of +0.2%.
ZeroHedge notes that "overall business inventories at their highest to
sales since the crisis and deep in pre-recessionary territory." The gist
being that the persistent rise in inventories portends an imminent recession.
ZeroHedge warns, "This won't end well."
I think gold remains underpinned because investors remain skeptical about the
recovery. Something doesn't feel right and they are making the requisite
portfolio adjustments to protect themselves. That is clearly reflected in the
gold demand data released yesterday, which showed a 21% jump in Q1, the best
first quarter on record. That of course led to the best Q1 price performance
in three-decades.
As economist continue to worry about "secular stagnation" and the
likely reactions by central banks with ever-more experimental policy
approaches, the demand for gold is likely to remain robust. Something the WGC
eluded to their report in saying "the sector does appear likely to
benefit further from the improved outlook towards gold among a broad investor
base."
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