FX Friday Global Currency Review & Forecast For 8-5-16
Weak GDP Numbers Call Into Question Strength of U.S. Economy – Boost Gold and Silver
There is an optimistic story about the U.S. economy that heralds the “solid” job growth and near full employment. This supposed robust economy was engineered by the Federal Reserve’s quantitative easing and zero interest policies that have allowed it to reach escape velocity. As the U.S. economy strengthens, the U.S. Federal Reserve should be able to raise interest rates gradually.
There is another story about the U.S. economy that tells of slowing or non existent growth as evidenced by the most recent GDP reading of 1.2% growth for the second quarter of 2016 and just 0.8% for the first quarter. With sluggish growth, global economic uncertainty caused by Brexit and slowing growth in China and elsewhere, many market and Fed observers think the Fed won’t be able to muster even one rate hike in 2016.
Economic cheerleaders like Jamie Dimon, CEO of JP MorganChase, dismiss this version of the U.S. economy as he points to job creation, rising wages and consumer spending as evidence that the U.S. economy is indeed on the right path. Most Federal reserves officials are also dismissive of the low GDP numbers. San Francisco Fed President John Williams, recently said that the low GDP number don’t concern him and he expects solid growth in the second half of the year. Dallas Fed President Kaplan also noted he was “hopeful” for better GDP growth in the second half of 2016. Fed officials, including Messrs William and Kaplan, are still talking about Fed rate hikes in 2016 even though the Fed has not raised them at all so far this year.
Wait Till Next (Half of The) Year!
The calls for stronger growth the in the second half of the year have been made the past few years by Fed officials after dismal first half and especially poor first quarter GDP readings. While GDP numbers the past few years have tended to be stronger in the second half of the year than the first, they have never been enough to produce even a 3% annual GDP growth reading.
Gold and Silver Benefit From a Do Nothing Fed
The slow economy, highly accommodative Fed monetary policy (despite hawkish Fed statements) global economic and political uncertainty, have produced strong gains for gold and silver this year.
Gold and Silver
Gold has risen more than $200 an ounce in 2016 or more than 30% and has traded over $1300 an ounce since the end of June.
Year to Date Dollar Index, Oil and Gold Prices
Silver has been the best performing asset in 2016, rising well over 40% in 2016. The price of silver has held over $20 an ounce during the month of July. The price of silver is at its highest levels in two years.
Year to Date Dollar Index, Oil and Silver Prices
The last couple of weeks have seen a sharp decline in the price of oil. Oil had been one of the best performing assets of 2016, but recent declines due to building oil stockpiles and the potential of an oil glut have driven the oil price to close to $40 a barrel, down from its high of about $50 a barrel this year.
Next week is a quiet one on the economic reporting front. This means the focus will be on the market reaction to today’s Non Farm Payroll and what it means for the U.S. economy and Fed interest rate policy. All markets will probably begin to be influenced by the U.S. Presidential election and the domestic uncertainty it entails.
Here are some economic reports that could impact gold, silver and currency movements next week:
Aug 9 Productivity-Prel Q2
Aug 9 Unit Labor Costs Q2
Aug 9 Wholesale Inventories Jun
Aug 10 MBA Mortgage Index 08/06
Aug 10 JOLTS – Job Openings Jun
Aug 10 Crude Inventories 08/06
Aug 10 Treasury Budget Jul
Aug 11 Initial Claims 08/06
Aug 11 Continuing Claims 07/30
Aug 11 Export Prices ex-ag. Jul
Aug 11 Import Prices ex-oil Jul
Aug 11 Natural Gas Inventories 08/06
Aug 12 PPI Jul
Aug 12 Core PPI Jul
Aug 12 Retail Sales Jul
Aug 12 Retail Sales ex-auto Jul
Aug 12 Mich Sen Aug
Aug 12 Business Inventories Jun
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.