Alright, folks, let’s cut to the chase. Gold is surging, and it’s not a coincidence. COMEX gold shot up 1.74% to $3243.90/oz, with SHAU1 following suit with a 1.22% climb to 754.32 yuan/gram. Why? Because the US economy is sending out some seriously concerning signals.
Photo source:www.straitstimes.com
The April industrial output stalled at 0%, missing estimates of 0.2%. Let that sink in. This isn’t just a minor miss; it’s a withdrawal of momentum. This, combined with Powell’s comments hinting at a shift in the Fed’s framework – signaling the days of relying on zero interest rates are over – is fueling the gold rally.
Let’s unpack what’s really happening here. (Knowledge Point)
Industrial output is a key measure of economic health. It reflects the production of factories, mines, and utilities. A flat reading means the manufacturing sector isn’t growing, a worrying sign for overall economic expansion.
Powell’s statements aren’t a casual thing. The Fed is admitting its old playbook needs rewriting. They’re now focused less on simply chasing full employment and more on balancing that with inflation – a much more nuanced approach.
Furthermore, the ‘Fed Watch’ tool at CME Group shows markets are pricing in almost no chance (91.7%) of a June rate cut. A tiny 8.3% chance exists for a 25 bps cut, and even July’s prospects are fading; with 63.2% probability to hold steady!
This isn’t just about the numbers; it’s about perception. The market is rapidly re-adjusting to the reality of a higher-for-longer interest rate environment. And guess what loves a higher-for-longer environment? Gold, it does.
Be warned: This data suggests the timeline for rate cuts is being pushed further out, potentially giving gold a much-needed boost. Keep a very close eye on the situation. Don’t get caught flat-footed.
