Gold: D-Day Looms
Big drama is on tap for next Wednesday, when the next Federal Reserve policy statement coincides with the first quarter GDP report.
Get ready for market mayhem.
Growing evidence of a U.S. recession. Not only has that evidence continued to build in the meantime, we’ll get the latest odds in just a few days — next Wednesday, to be precise.
And it is likely that the markets will be roiled by the result.
First off, at 8:30 a.m. EDT, we’ll have the initial report of first quarter 2015 Gross Domestic Product. As increasingly dour data have continued to roll in over the past few weeks — including the stunningly bad nonfarm payrolls report that I wrote about in our last issue — economists have been ratcheting back their expectations for Q1 GDP.
The consensus estimate is now just 1.2%, but many economists are expecting a sub-1% number. In fact, John Williams, author/analyst/proprietor of the famed Shadow Government Statistics service ( shadowstats.com), is predicting that the U.S. economy actually retracted in the first quarter:
“...real (inflation-adjusted) retail sales and housing starts now have joined with industrial production, the trade deficit, real construction spending and real new orders for durable goods in signaling an outright contraction for first-quarter 2015 real GDP. What is missing, still, is market-consensus recognition of that circumstance.”
Williams does caution that, because the Bureau of Economic Analysis considers consensus forecasts in its initial estimate of GDP, and because the consensus estimate is still above 1.0%, the BEA will probably report a positive GDP number. But at the least, it will be sharply weaker than most are expecting.
In a very interesting and curious twist, the GDP number will come just as the Federal Reserve is finishing its latest two-day meeting and polishing off its policy statement.
That statement will almost assuredly incorporate the first quarter GDP result. Therefore, if the report is as dour as Williams is predicting, we can expect the Fed policy statement to be very dovish in regard to monetary policy stance.
In other words, the Fed will signal a further postponement of rate hikes.
Gold will soar if the scenario plays out like this, but it’s important to note that longer-term gains will only come if the evidence of a U.S. economic slowdown continues to build.
But in the near term, the above scenario would certainly be enough to brighten the hearts of gold bugs everywhere.
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