Assessing gold variables
The negative data regarding the US economy is outweighing anything positive lately. Wage growth remains an important missing piece of the improving US labor market. Industrial activity is also slowing down and consumer sentiment is still lukewarm.
The direction of US economic data coming out in the next few weeks will be critical to the timing of the Fed’s rate hike decision. Any weaker-than-expected data would be positive for gold, because the Fed is, and will be, cautious about increasing interest rates in a weak economic growth environment.
Gold seems solid in the short term
Concerns about a default by Greece and its eventual exit from the Eurozone should support gold prices in the short term. If the uncertainty in the Eurozone increases, gold may rally. On the other hand, a sooner-than-expected rate hike would likely push down non-yielding assets such as gold.
Given the recent economic data, the chances of a hike before September are considerably reduced. A delay in the interest rate hike would probably be positive for gold because low rates diminish the relative cost of holding a non-interest bearing asset.
This would likely impact gold prices (GLD) and gold stocks including Goldcorp (GG), Yamana Gold (AUY), and Newmont Mining (NEM). Combined, these stocks form 17.4% of the VanEck Vectors Gold Miners ETF (GDX).
The US inflation rate, US jobless claims, and the May preliminary manufacturing PMI (purchasing managers index) are the key data points for investors to look at to get a sense of the direction of US economic growth following this sluggish first quarter.
For the latest updates, visit Market Realist’s Gold ETFs page.