Gold Resilient Despite Data That Gives Fed Hawks Ammunition

Wednesday May 18, 2016 08:30

(Kitco News) - Yesterday’s US economic data showed the largest increase in CPI in three years. Industrial production also bounced strongly. The dollar has rebounded, as the Fed will now surely raise rates in June. Gold got slammed down almost $3 this morning. Maybe gold is telling us, with the recent issues with the equity market, the British vote on EU membership and the Greek debt debates, that the Fed may ignore the inflation pick-up and stand pat. If the Fed stands pat ( which we expect) and allows inflation to grind higher, it sets up  the Fed behind the curve, with macro events still freezing their hand. The release of the April  Fed minutes  this afternoon may have a more hawkish tone, but tone and action are not the same. It is possible that the market may see a correction, as the weight of the books are skewed to the long side but I suspect any pullback to be met with buying. Watch the $1,265 level and the $1,282 area for an intra-day range.

By Peter Hug, Kitco Metals Global Trading Director; phug@kitco.com