Dollar Drop And Bad U.S. Retail News Light Gold Fuse

Flat retail sales in April ignited a sell off of the U.S. dollar today, boosting gold all by itself by not quite 1.00%. Investors and traders joined in the love fest and kicked the yellow precious metal even higher.

The dollar fell on a number of news items, chief among them the flat lining of April retail sales in the U.S. (Although we have serious reservations about the way “retail sales” are measured, given so many exceptions are made, including autos, aircraft, dining out among a handful of other components.)

Today the Commerce Department said that retail sales were unchanged last month after rising 1.1 percent in March. Sales have risen just 0.9 percent over the past 12 months.

The retail data seems to be cementing in place the prediction we made last year that the Fed will not raise rates in June and may not do so even in September. We can’t help but return to the closing paragraph of the release the FOMC made on April 29, 2015. It bears a close reading, especially if you hold a generally bullish attitude toward gold (and silver).

“When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

Got it? Two notes on the statement. First, we are nowhere even close to a 2% inflation rate even though we are getting closer to the employment goal of 5.0%. Perhaps there is a tipping point in employment rates that will suddenly turn on the inflation spigot. However, we’ve seen so little wage pressure thus far it is hard to imagine that would be the case.

Fed Chairwoman has a lot of strengths. One of them is that she looks at unofficial numbers regarding employment. She knows as well as any other data cynic that the actual unemployment rate is slightly north of 10%.

Besides being politically liberal, she is also liberal in the broader sense of the word. She wants a humming economy and she wants people to lead good lives.

There are other moving parts in what we see as a potential for a decent rally. (Above and beyond the technical resistance we’ve seen right around the levels of today’s high.) There is bond yield to consider. There is the counter effect of a falling dollar, which can goose inflation. There is the performance of equities markets.

On top of that, we have worries over Japan’s and China’s debt levels. We also have – in the case of the United States – a small revolt brewing over income distribution, which will become louder and more visible as we enter the presidential campaign in real time later this year.

Politically, the topic will be radioactive. However, if you’re looking for inflation that could guide the Fed, you can’t have wage levels standing still. It just won’t happen.

Wishing you as always, good trading,