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James Hyerczyk
Gold Bars and Dollar

Gold finished slightly lower last week, pressured by a rebound in the U.S. Dollar, a surge in Treasury yields and increased appetite for risk. Early in the week, gold prices were supported by concerns over a slowing global economy and muted U.S. inflation data, but conditions changed after a U.S. report confirmed a strong labor market and China reported better-than-expected trade balance data. Both pieces of information helped dampen concerns over a global economic slowdown, which made gold a less-desirable asset.

Last week, June Comex Gold settled at $1295.20, down $0.40 or -0.03%.

Bullish Influences


Muted U.S. Inflation Data Supportive

On the economic front, U.S. consumer inflation increased by the most in 14 months in March, but the underlying inflation trend remained muted amid slowing domestic and global economic growth.

According to the U.S. Labor Department, the Consumer Price Index rose 0.4 percent. In the 12 months through March, the CPI increased 1.9 percent. Economists had forecast the CPI rising 0.3 percent in March and accelerating 1.8 percent year-on-year.

The Core CPI inched up 0.1 percent. In the 12 months through March, the core CPI increased 2.0 percent. The core CPI rose 2.1 percent year-on-year in February.

The Labor Department also reported that U.S. producer prices increased by the most in five months in March, but underlying wholesale inflation was muted.

The producer price index for final demand rose 0.6 percent last month. In the 12 months through March, the PPI rose 2.2 percent. Economists had forecast a reading of 0.3 percent in March and an increase of 1.9 percent on a year-on-year basis. The core PPI increased 2.0 percent in the 12 months through March.

Dovish Fed Minutes Priced into Market

The latest minutes of the U.S. Federal Reserve’s March 19-20 policy meeting, showed most policymakers viewed price pressures as “muted,” but expected inflation to rise to or near the central bank’s 2 percent target. However, the minutes offered no surprises for investors so stock prices remained stable. If anything, the minutes reinforced the view that rates are likely to remain on hold for the foreseeable future.

Bearish Influences

U.S. Jobless Claims Decline to Nearly 50-year Low

The Labor Department also reported that the number of Americans filing applications for unemployment benefits dropped to a 49-1/2 year low the week-ending April 6. Initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 196,000. Traders were looking for an increase to 211,000.

Appetite for Risk Jumps on Solid Bank Earnings, Big Energy Acquisition

The major stock indexes were headed for a weekly loss until Friday’s surge drove the S&P 500 Index 0.69% higher, the Dow Jones Industrial Average 1.04% better and the NASDAQ Composite up 0.49%.

The rally was fueled by a slew of positive corporate news that included strong earnings from J.P. Morgan Chase, which delivered better-than-expected results, Disney’s unveiling of a new streaming service, and the announcement that Dow member Chevron plans to acquire Anadarko Petroleum for $33 billion in cash and stock.

China Trade Balance Data Dampens Concerns Over Slowdown

U.S. stock markets were also supported by stronger-than-expected exports data out of China, which helped dim worries over a possible economic slowdown in the world’s second largest economy. Exports in China rose 14.2 percent in dollar terms last month, nearly double what economists expected.

Weekly Forecast

Look for below average volume during the holiday-shortened week. This doesn’t mean volatility will be below average, however. It could be low or it could be high if rogue buyers or sellers try to take advantage of the relatively thin trading conditions.

Other than the dovish tone from the central banks and worries about weaker global growth, it’s hard to find a bullish catalyst. A steady dollar, rising Treasury yields and strong demand for higher-risk assets will likely keep a lid on gold prices. Additionally, inflation is muted, the U.S. and China are close to a trade deal and Brexit is delayed.

We could see some volatility in the market if China misses in either direction on GDP. It is expected to come in at 6.3%. A better number will be bearish for gold. A weaker number will underpin gold prices.

In the U.S., traders will get an opportunity to react to the latest data on Core Retail Sales and Retail Sales.

Friday is a U.S. bank holiday. There will be no trading activity.

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