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Gold may continue to gain even as strong data continues to flow for the US economy

Today's market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

 

May 15, 2024 (Investorideas.com Newswire) Gold is trading sideways today, straddling the $2,357 per ounce level, while the yellow metal remains near its highest levels in about 20 days.

Gold's cautious moves today come with anticipation of consumer price inflation data in the US for April, which may help markets build a clearer perception of the path for monetary policy for the rest of this year.

Yesterday, we witnessed the Producer Price Index (PPI) growth accelerating more than expected by 0.5% on a monthly basis, both for the headline reading and the core reading that excludes energy and food items.

Despite this, gold was able to rise by 0.9% at the end of yesterday's close. While the flow of strong data, whether for inflation, labor market or economic activity, has been continuing almost since the beginning of the year since gold was near the level of $ 2000 per ounce. Therefore, I do not expect today's consumer price data to push gold to give up its gains significantly, even if it presents a very positive surprise.

The strong data that followed an earlier series of data indicating subdued inflation and a cooler labor market prompted an ongoing shift in expectations about the Federal Reserve's next steps. After the focus was on March as the starting point for cutting rates, we are now talking about September as the earliest possible date.

This constant shift in market expectations creates another problem: uncertainty, which gold naturally benefits from. While the "higher for longer" situation has lost its ability to strip the yellow metal of its historical gains, it may become, in my opinion, an indirect contributing factor, with fears that the Fed's adherence to high rates may cause overtightening, which will weaken economic growth.

This is not yet clear, with strong economic activity continuing and corporate' results during the first quarter exceeding most expectations, but the question may remain how long the economy can adapt to the very high rates. This is what is causing Wall Street to dump gold and this is reflected in the huge net outflows from the largest physical gold ETFs, GLD and IAU, which have totaled $4 billion since the beginning of the year.

Gold also benefits from the continued geopolitical concerns resulting from what is happening in the Middle East and Ukraine, although these factors have lost their luster recently, ruling out the possibility of these wars expanding beyond their current scope.

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