The announcement last week of long-delayed Producer Price Index (PPI) data from the United States set financial markets reeling. This has had a profoundly positive impact on the value of the US Dollar. In November, the annual core PPI jumped to 3%. This spike has economists and analysts across the globe considering its influence on inflation and currency strength. This favorable economic environment has enabled spot gold prices to continue their historic upward climb, hitting $4,642 on Wednesday.
Those much delayed PPI figures are finally out, providing key clues about the inflationary pressures battering our economy. These perspectives are a key ingredient for appreciating the current financial picture. Even with core PPI soaring, market sentiment continues to play a major role in driving US Dollar value. As such, it has grown much more vulnerable to ups and downs in investor sentiment and market expectations.
At an AA event earlier this week, former senior treasury official Stephen Miran discussed his analysis of the current economic situation. He did lean dovish on future monetary policy. His insights are a sign that the Federal Reserve will likely become more accommodating as economic conditions evolve. Such a shift would serve to strengthen the Dollar, which would then have an important impact on the price of gold.
The most closely-watched momentum indicator, as trends go, has recently flattened above its midline. This would imply that gold prices are moving into a consolidation phase. The Relative Strength Index (RSI) is high at 64. This implies gold is approaching overbought territory, yet it continues to hold very strong bullish momentum.
Spot gold’s bull trend gets bolstered by the 20-day SMA, now located at $4,438.80. The last of the smart growth key indicators, and the one rising most powerfully. It now very much above both the 100-day and 200-day SMAs, reflecting a powerful bullish domination. Further, the shorter 20-period SMA is currently located at $4,591.39, offering the first line of dynamic support for gold prices in the weeks ahead.
The PPI data from the United States was accompanied by other widely watched macro economic figures. These key figures shed light on the trends in consumer spending. Retail sales beat expectations, rising 0.6% in November, a sign that consumers are out and about this holiday season. At the same time, the Retail Sales Control Group showed a tepid 0.4% advance. These preliminary figures reflect the strength of consumer demand. If consumption continues to be greater than supply, we are going to create inflationary pressures.
As these economic indicators continue to unfold, investors are watching intently to see what impact they will have on monetary policy and shifting market sentiment. Inflation data has a huge impact on consumers. This relationship is critical to understanding where the gold market, and the financial world as a whole, is headed in the future.