Slew of economic data suggests economy spinning wheels at stall speed
Gold settled lower Tuesday as investors took profits ahead of the conclusion of the Federal Reserve's policy meeting Wednesday, trading roughly between $1,340 and $1,355.The gold market reached a "pretty important technical crossroads with gold in the $1,350s," said Gene Arensberg of the Got Gold Report. "Between $1,350 and $1,375 is (an unknown but almost certain) point of transition where the 'maybe new bull-market leg' becomes a 'confirmed new bull-market leg', which would invite participation by momentum traders in larger numbers.
"On the other hand, below about $1,325 (if sustained) would signal that this current, surprisingly firm bullish impulse has failed, at least for the short term," he said. "The [Fed] meeting this week is a distraction with the gold market pricing in something longer term now."
The statement due Wednesday "might act as a trigger of sorts," he said. It may be "a starting gun for whichever side, bull or bear," actually has the bigger pull on the market.
Except for stocks, economy going nowhere fast
"While the U.S. economy is not currently in danger of slipping back into recession, neither is it accelerating. The government shutdown and budget battles certainly did not help matters," said Russ Koesterich, global chief investment strategist atBlackRock. "The drama undermined business confidence, which in turn dampens hiring."
U.S. stocks rose, with the S&P 500 Index extending a record, as new economic data raised the odds of a dovish Fed statement Wednesday.
"It still seems that the Fed has created this good news is bad news, bad news is good news scenario," noted Randy Bateman of Huntington Asset Advisors. "The anticipation is that the Fed will retain its purchasing of $85 billion in monthly Treasury and mortgage securities, which is going to continue to help the housing market. That will be taken fairly well by the market."
Key numbers falling flat -- or worse
Data showed retail sales dropped 0.1% last month, restrained by the biggest decrease at auto dealers since October 2012. Wholesale prices unexpectedly fell in September as food costs retreated. Inflation has been running below the Fed's 2% target in the near-term, giving its policymakers room to maintain monetary stimulus.
A separate report showed confidence among U.S. consumersdeclined in October by the most since August 2011 as the budget impasse and debt-ceiling negotiations in Washington took a toll on outlooks.
And on Monday, U.S. manufacturing output barely rose in September, and contracts to buy previously owned homesrecorded their largest drop in nearly 3-1/2 years.
The reports showed economic activity was on weak footing even before a 16-day partial shutdown of the U.S. federal government early in October that is expected to weigh on fourth quarter growth.
"Economy seems to be losing steam"
"The economy seems to be losing steam as higher mortgage rates have hit the housing market and destructive government policy will likely bash the rest of the economy," said Joel Naroff, chief economist at Naroff Economic Advisers.
As MarketWatch observed, "U.S. growth was sputtering before the government shutdown in early October, and judging by the latest look under the hood, it could take a while before the economy generates enough power to get over the latest speed humps."
Given this anemic data, don't expect the Fed to be taking away its stimulative punchbowl anytime soon as it struggles to wring the deflationary forces out of the U.S. economy. And that unprecedented effort carries with it the risk of eventual wealth-destroying inflation, not to mention an unsustainable stock bubble. Stay prepared with gold.
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