Gold Slipped On Strong US Data, Eyes On Fed Minutes Today
- Dallas Fed President Robert Kaplan said that he will advocate for an interest-rate hike at the Fed's upcoming policy meetings. He added: "Whether that's June or July, I can't say right now”. Atlanta Fed President Dennis Lockhart said that he still assumes there will be two to three rate hikes between now and December, and that markets are more pessimistic on the US economic outlook than he is. "I think it certainly could be a meeting at which action could be taken," Lockhart said in reference to the Fed's next policy meeting on June 14-15. San Francisco Fed President John Williams echoed the optimistic view of the economy. Two to three interest rate hikes this year "seems reasonable," he said, and there will be a lot more economic data to parse between now and mid-June.
- US data on consumer prices, housing starts and industrial production released on Tuesday showed the US economy re-accelerating into the second quarter.
- The Labor Department said its CPI increased 0.4% last month, the largest gain since February 2013, after rising 0.1% in March. That took the year-on-year increase in the CPI to 1.1% from 0.9% in March. The so-called core CPI, which strips out food and energy costs, rose 0.2% after climbing 0.1% in March. In the 12 months through April, the core CPI increased 2.1% after increasing 2.2% in March.
- In a separate report, the Commerce Department said housing starts increased 6.6% to a seasonally adjusted annual pace of 1.17 million units last month, with builders ramping up the construction of single- and multi-family homes. Building permits rose 3.6% to a 1.12 million-unit rate.
- The improving outlook was underscored by a third report from the Fed showing industrial production increased 0.7% in April after two straight months of declines as a 5.8% surge in utilities output offset another decline in mining. Manufacturing production rose 0.3%, with machinery and motor vehicles and parts output increasing solidly.
- Traders will be eyeing the Fed's April meeting minutes which is due later in the day for further cues on US interest rate outlook. In its April policy statement, the Fed indicated it wants to have more confidence in the economy's overall health before hiking rates again. That is why today’s minutes may cool down market expectations for a rate hike at June meeting.
- Gold dropped today after strong US economic data and comments from the central bank officials bolstered expectations that the Federal Reserve could soon hike interest rates. Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-interest yielding bullion. On the other hand, gold is also used as a hedge against inflation. That is why gold price is likely to rise gradually in the long term.
Source: Growth Aces - Forex And Precious Metals Trading Signals