USAGOLD/Peter Grant/05-11-17
Gold continues to consolidate within Tuesday’s range, just above the lows of the recent move. A firmer dollar is helping to keep the yellow metal contained on the upside, while geopolitical risks are seen as limiting the downside.
A bigger than expected rise in producer prices to 2.5% y/y in April edged the needle toward stagflation in light of the anemic 0.7% growth in Q1. April CPI comes out tomorrow and arguably there is some upside risk to the +0.2% expectations.
Markets now need to figure out if the Fed is more likely to adjust policy in response to hotter inflation, or the weak growth. Inflation is of course the hearts desire of central banks in countries that carry massive deficits.
However, if growth collapses, so typically do prices. So monetary policy becomes a delicate balancing act. In playing that game, sometimes stagflation results.
What’s important to remember is that no matter the ‘ation’ we get — inflation, deflation or stagflation — gold tends to perform well in all these environments. The recent dip in prices may be viewed as an excellent buying opportunity.
