Gold prices almost hit $1500 again on Thursday as a tougher foreign exchange market and another round of poor economic data sent the dollar into a slump.
You may recall that earlier this month, figures from the Institute for Supply Management (ISM) which tracks US service sector sentiment fell more than industry watchers were expecting between August and September. The three year low was just 2.6% away from industry contraction. This week, it was the turn of retail, which has also fallen away more than expected – suggesting the malaise is now spreading across sectors.
According to this week’s figures from the Commerce Department, retail sales fell for the first time in seven months in September. The 0.3% drop shows shoppers are pulling back spending at a critical time for the industry as we approach the run up to the holiday shopping season. Online purchases, vehicles, spending on hobbies and building supplies were all down. This is bad news for the wider economy but good news for gold.
Speaking to Reuters, Lindsey Piegza, chief economist for financial advisory Stifel said, “This morning’s report solidifies concerns of the consumer’s inability to perpetually support the economy alone. With business investment declining and manufacturing activity deteriorating, many investors brushed off fears of a slowdown because the consumer was still spending.” With that no longer the case, GDP forecasts for Q3 have been lowered and the Federal Reserve says the economy is now expanding at just a “slow to moderate” pace.
Pulled together, this data means that another round of rate cuts is now highly likely in order to try and stimulate a flagging economy before recession looms larger. All this is good news for gold as it sets up perfect conditions for gains heading into the end of the year. Now is a great time to buy.