By: Treasure Coast Bullion Group -





Gold Stabilizes as Mild U.S. Inflation Buoys Prices

There were several important announcements this week that drove the macroeconomic backdrop which in turn steered gold bullion prices. The highlights were Fed Chair Powell’s first testimony in front of congress as well as Trumps trade announcement. Gold prices were under pressure mid-week as the new Fed chair initially commented that the U.S. economy might be overheating which increased rates and buoyed the dollar which weighed on gold. Later in the week, the Trump administration announced it planned on evoking tariffs on steel importers into the United States. Protectionism will increase import prices, which would include gold. While job data in the U.S. is very robust, inflation is subdued leaving the debate over a 4th rate hike by the Federal Reserve front and center in 2018.

Inflation is Subdued to the Fed

The hotter than expected CPI and PPI released during the third week of February, were countered by a relatively subdued Personal Income Expenditures report which is the Fed preference for gauging inflation. The commerce department reported that U.S. personal income rose 0.4% in January, with spending up 0.2%.

On the inflation front the PCE chain price deflator was up 0.4% from 0.1%, with the core rate up 0.3% versus 0.2% previously. On a year over year comparison the PCE deflator, the Fed's preferred measure, was steady at 1.7% year over year and still below target which is approximately 2%, with the core rate unchanged as well, at 1.5% year over year. At issue is that the Fed is in the process of normalizing, which is increasing rates despite inflation below target. Wages are slightly on the rise. January wages and salaries were up 0.5% after rising 0.4% in December. Disposable income surged 0.9% versus 0.4%. The savings rate rose to 3.2% from 2.5%.

Jobs Data is Very Strong

On a weekly basis the Labor Department releases jobless claims. This week, U.S. initial jobless claims dropped 10k to 210k in the February 24 week, the lowest since 1969. That brought the 4-week moving average down to 220.5k from 225.5k. Continuing claims rebounded 57k to 1,931k in the February 17 week following the 74k plunge to 1,874k previously.

Powell was Impressive

In his first public testimony in front of congress, new Fed Chair Gerome Powell was impressive. He had a very good handle on every question and avoided responding to any political issues or areas that where outside the purview of the Federal Reserve.

It appears that Powell’s Fed is okay with letting inflation run-up a bit towards its 2% target, so long as the economy doesn't overheat in the process. The forward guidance did not change which means that we should expect the status quo.

Power said, "While many factors shape the economic outlook, some of the headwinds the U.S. economy faced in previous years have turned into tailwinds.” While the committee continues to see accelerating jobs growth there has yet to be a spillover into inflation.

The Feds view that further gradual increases in the federal funds rate will best promote both Federal Reserve’s objectives. Powell did repeat that he was not going to pre-judge the performance of the U.S. economy and changes to monetary policy will be dynamic.

Prices were very choppy this week and may have been able to recapture the 50-day moving average by weeks end. Friday’s rebound should go a long way in stabilizing prices.