May U.S. Consumer Spending and Gold

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Published : June 30th, 2016
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Category : Market Analysis

U.S. consumer spending rose 0.4 percent in May. What does it mean for the gold market?

Personal consumption expenditures moderated in May, increasing just 0.4 percent after 1.1 percent rise in April. The slowdown resulted mainly from a dropoff in sales of new cars and trucks. The chart below shows that although the annual pace of growth is lower than in 2014, it accelerated since the end of 2015. The number is not impressive, but shows that the U.S. economy is moderately expanding, despite the weak growth in the first quarter. The GDPNow model forecast for real GDP growth in the second quarter of 2016 increased after the release of the report from 2.6 percent to 2.7 percent. It is bad news for the gold market.

Chart 1: Personal consumption expenditures from 2011 to 2016 (as percent change from year ago).

24hGold - May U.S. Consumer Sp...

The income side of the report was definitely weaker, as personal income increased just 0.2 percent, following a 0.5 percent rise in April. It was the smallest gain in three months. The modest increase in income forced Americans to dip into their savings a bit – the personal saving rate dropped from 5.4 percent to 5.3 percent. On an annual basis, the pace of growth of real personal income is in the downward trend, as one can see in the chart below.

Chart 2: Real personal income over the last 12 months (as a percent change from year ago)

24hGold - May U.S. Consumer Sp...

And what about inflation? Both the PCE price index and its core version, which excludes food and energy, increased 0.2 percent in May, following 0.3 percent rise in April. On an annual basis, the PCE price index jumped 0.9 percent, while the core PCE price index rose 1.6 percent. It means that the inflationary pressure eased compared to April, as one can see in the chart below. Inflation is still below the Fed’s target and there is little evidence that it is about to accelerate. The low rate of inflation will not give the Fed officials arguments to raise interest rates very soon, which sounds pleasantly for the gold market.

Summing up, the April Personal Income and Outlays report was not weak, but was weaker than month ago. It is consistent with the moderate economic growth, but it should not provide the FOMC hawks with strong arguments to hike. Mr. Market is betting that the U.S. central bank will not raise interest rates until 2017, which should be welcomed by gold investors.

If you enjoyed the above analysis, we invite you to check out our other services. We focus on fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our mailing list yet, we urge you to join our gold newsletter today. It’s free and if you don’t like it, you can easily unsubscribe.

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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Przemyslaw Radomski is the founder, owner and the main editor of www.SunshineProfits.com. Being passionately curious about the market’s behavior he uses his statistical and financial background to question the common views and profit on the misconceptions. “Don’t fight the emotionality on the market – take advantage of it!” is one of his favorite mottos. His time is divided mainly to analyzing various markets with emphasis on the precious metals, managing his own portfolio, writing commentaries, essays and developing financial software. Most of the time he’s got left is spent on reading everything he can about the markets, psychology, philosophy and statistics. Mr. Radomski has started investigating the markets for his private use well before starting his professional career. He used to work as an informatics consultant, but this time-consuming profession left him little time for his true passion – the interdisciplinary market analysis. Establishing www.SunshineProfits.com gave him the opportunity to put his thoughts, ideas, and experience into form available to other investors.
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