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Gold Futures Highest Level Since April

Gold futures reached their highest settlement in more than five weeks thanks to worse than anticipated US retail sales which helped pressure the dollar downwards and raised expectations that the Federal Reserve will push back interest-rate hike plans.

Gold rose $25.80, or 2.2%, to settle at $1,218.20 an ounce, the highest close since April 6.  

The Commerce Department reported flat sales in April, with sales excluding autos and gasoline having rose just 0.2%.

“The recent U.S. dollar weakness has propelled gold back above $1,200,” said Ken Ford, president of Warwick Valley Financial Advisors.

“Now traders are paying very close attention to gold as it approaches resistance at $1,220,” he said. “If price can break above that resistance level, gold should be able to make another run at $1,300 mark.”

“One thing is for sure: [the] Fed interest-rate hike will be delayed beyond most of our expectations,” said Karnani.

HSBC chief economist Stephen King anticipates a new recession.

He warned clients in a note on Wednesday:

“The world economy is like an ocean liner without lifeboats. If another recession hits, it could be a truly titanic struggle for policymakers.”

Here’s King (emphasis added):

Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery — both in the US and elsewhere — has been distinguished by a persistent munitions shortage. This is a major problem. In all recessions since the 1970s, the US Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out.

King notes that it is worrisome how treasury yields have no rise and the budget deficit is increasing. Welare payments, also, are increasing.

What might trigger another economic recession? According to King:

  • Wage growth could hurt corporate earnings and reduce the share of corporate profit contributing to US gross domestic product (it also doesn’t help that worker productivity is low). In turn, households and businesses will lose confidence in the economy, and the “equity bubble” will burst with collapsing stock prices.
  • Nonbank financial systems such as insurance companies and pension funds will increasingly not be able to meet future obligations. This will cause a huge demand for liquid assets, forcing people to rush to sell despite no matching demand, triggering a recession.
  • Forces beyond the Federal Reserve’s control, including the possibility that China’s economy and its currency could collapse. Weak commodity prices could also cause collapses in several emerging markets, as could continued strength in the US dollar.
  • The Fed could cause the next recession by raising interest rates too soon, repeating the mistakes of the European Central Bank in 2011 and the Bank of Japan in 2000.

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