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USAGOLD/Peter Grant/04-28-17
Gold edged higher in the wake of this morning’s advance Q1 GDP disappointment. Silver on the other hand remains on the defense, dropping to a 6-week low of 17.14. That drove the gold/silver ratio to a 10-month high above 73.44.
The BEA reported Q1 GDP at 0.7%, well below expectations of 1.3%. That puts the advance number smack-dab in the middle, between the median expectations and the Atlanta Fed’s GDPNow forecast that was lowered to +0.2% yesterday.
That 0.7% print is the lowest since Q1-14. In this instance, the bad number is largely attributable to a collapsed in consumer spending, which rose just 0.23% in Q1. That’s the smallest increase in spending since 2009. I said it several weeks ago when the March retail sales print was -0.2%:
Lots of consumer optimism . . . no consumers . . .
— Peter A. Grant (@USAGOLD) April 14, 2017
The FOMC will meet next week, and they are widely expected to hold steady on policy. Focus is really on the June meeting, where the weak GDP data have not had a significant impact on rate hike expectations…yet. Odds of another 25 bps rate hike are holding steady around 67%.
However, in light of 3.5% in Q3-16, 2.1% in Q4-16 and now 0.7% in Q1-17, it sure looks like the Fed is hiking into weakness; just like they did in December of 2015, prompting a year-long pause in the tightening cycle. Additionally, with oil back below $50, price risks have mitigated significantly as well. Does the Fed really have a reason to hike in June?
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