IAUM - Gold: Seasonal Top Is Knocking At The Door

2023-04-02 08:26:59 ET

Summary

• Despite facing inflation, high interest rates, layoff news, and falling asset prices, consumers continue to spend at a solid pace in the US.
• When investors are concerned about inflation or other economic risks, they may turn to gold as a way to protect their wealth.
• Moreover, inflation is a common factor that can impact both consumer spending and gold prices.
• A banking crisis can have a significant impact on consumer spending by reducing access to credit, creating economic uncertainty, leading to job losses and eroding consumer confidence.

Consumer Spending Remains Robust Despite Economic Challenges

Despite facing inflation, high interest rates, layoff news, and falling asset prices, consumers continue to spend at a solid pace in the US. According to data by the Bureau of Economic Analysis, consumer spending in February ticked down by 0.3% following a surge in January. However, when we look at the broader trend, we see that spending has been growing solidly, up by 2.5% compared to the same period last year.

The growth in spending has been particularly impressive given the current economic environment, with rising prices and higher interest rates weighing on consumer sentiment. However, Americans are continuing to spend, with spending on services rising at a faster pace than average. In February, spending on services rose by 3.3% year-over-year, exceeding the five-year average of 2.3%.

Durable goods spending growth is also holding up, increasing by 2.7% year-over-year, even though stimulus funds have run out. Consumers are still buying new and used vehicles, appliances, furniture, electronics, and other durable goods. However, spending on nondurable goods has slowed down, barely growing in February and up less than 1% from a year ago. This is mainly due to food and fuel inflation, which has hit consumers hard in the first half of last year.

Overall, consumer spending has been on an upward trend, reflecting the resilience of the US consumer. Despite the challenges posed by inflation and high interest rates, Americans are still spending, with spending on services driving the growth. The banking turmoil may present a new challenge for consumers, but it remains to be seen if this will slow down spending.

Consumer spending and gold

Consumer spending is a measure of the total amount of money that consumers are spending on goods and services. It is an important driver of economic growth, as it represents a significant portion of total economic activity. When consumer spending is high, it can signal that consumers are confident about the economy and willing to invest in it, which can lead to increased economic growth.

On the other hand, gold is a commodity that is often viewed as a safe-haven asset during times of economic uncertainty. When investors are concerned about inflation or other economic risks, they may turn to gold as a way to protect their wealth. As a result, the price of gold can be influenced by economic factors such as inflation, interest rates, and the overall state of the economy.

There are several ways in which consumer spending and gold can be related. For example, if consumer spending is strong, it may signal that the economy is healthy, which could lead to a decrease in demand for gold as a safe-haven asset. Conversely, if consumer spending is weak, it may signal that the economy is in trouble, which could lead to an increase in demand for gold as a safe-haven asset.

Moreover, inflation is a common factor that can impact both consumer spending and gold prices. High inflation can erode the purchasing power of consumers, leading to a decrease in spending. At the same time, high inflation can also increase the demand for gold as a hedge against inflation.

While consumer spending and gold are two distinct economic variables, they can be related in certain ways. Economic factors such as inflation, interest rates, and overall economic health can impact both consumer spending and gold prices.

Consumer Spending and Banking Crisis

A banking crisis can have a significant impact on consumer spending in several ways. Here are a few ways in which a banking crisis can affect consumer spending:

1. Reduced access to credit: In a banking crisis, banks may be reluctant to lend money due to concerns about their own financial health. This can make it more difficult for consumers to access credit, which can reduce their ability to make purchases or invest in businesses.

2. Economic uncertainty: A banking crisis can create economic uncertainty, which can lead consumers to be more cautious with their spending. When consumers are uncertain about their financial future, they may be more likely to save their money rather than spend it.

3. Job losses: If a banking crisis leads to a broader economic downturn, it could result in job losses across various sectors. This can reduce consumers' disposable income, leading them to cut back on their spending.

4. Lower confidence: A banking crisis can erode consumer confidence in the banking system and the broader economy. This can lead consumers to be more hesitant to spend money, which can further slow economic growth.

A banking crisis can have a significant impact on consumer spending by reducing access to credit, creating economic uncertainty, leading to job losses, and eroding consumer confidence.

Interest rates can have a significant impact on consumer spending

1. Cost of borrowing: Interest rates can impact the cost of borrowing money for consumers, including mortgages, car loans, and credit cards. When interest rates are low, it is cheaper for consumers to borrow money, which can encourage them to spend more. Conversely, when interest rates are high, the cost of borrowing increases, which can discourage consumers from spending.

2. Savings rates: Interest rates can also impact the rate of return on savings accounts and other investments. When interest rates are high, consumers may be more incentivized to save their money rather than spend it, as they can earn a higher return on their savings. On the other hand, when interest rates are low, the return on savings accounts may be low, which can encourage consumers to spend more of their money.

3. Investment returns: Interest rates can also impact the returns on other investments, such as stocks and bonds. When interest rates are low, investors may be more likely to invest in stocks and other assets, which can increase their wealth and confidence, leading to increased consumer spending. Conversely, when interest rates are high, investors may be more likely to invest in bonds and other low-risk assets, which can reduce consumer spending.

Overall, interest rates can impact consumer spending through their impact on the cost of borrowing, savings rates, and investment returns.

Let's take a look at the Gold Weekly Standard Deviation Report published in the Marketplace section as Mean Reversion Trading, and see what short-term trading opportunities we can identify as we come into next week.

Gold: Weekly Standard Deviation Report

Apr. 01, 2023 1:07 PM ET

Summary

• The weekly trend momentum of 1913 is bearish.
• The weekly price momentum of 1985 is bullish price momentum.
• A close below 1985 stop, negates this bullishness neutral.
• If short, take profits 1964 - 1942., If long, take profits 2007 - 2028.
• Next cycle due date is 4.15.23.

Weekly Trend Momentum

Based on the weekly trend momentum, the gold futures contract closed at 1,986. However, the market closed below the 9-day SMA 1,913, which indicates that the weekly trend momentum is bearish. To shift the short-term trend to neutral, a close above the 9 SMA is required.

Weekly Price Momentum

The weekly VC PMI is 1,985 is bullish. A close below would change the VC PMI to neutral.

Weekly Price Indicator

To benefit from the current market conditions, traders can consider selling short positions into corrections at the Buy 1 and 2 levels of 1,964-1,942. On the other hand, traders who want to buy can wait for a weekly reversal stop if activated, and use the 1,942 level as a Stop Close Only and Good Till Cancelled order.

Finally, traders may want to sell their long positions as the market approaches the Sell 1 and 2 levels of 2,007-2,028 during the week to realize their profits.

Cycle

The next cycle due date is 4.15.23.

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