Last week, the recent anecdotal Federal Reserve’s report on economic conditions was released. What are the implications of the Beige Book for the gold market?

According to the latest Beige Book, a collection of anecdotes about the economy compiled by each of the Fed’s 12 District banks, the economy expanded during April and May. The report has an optimistic tone, as “most districts reported an uptick in retail spending” and “residential and commercial real estate activity and construction improved”.

However it seems to be slightly more pessimistic than the earlier editions of the Beige Book. Moreover, it does not suggest that a strong rebound from the weak first quarter is underway. Surprisingly enough, there was no mention of a rebound from bad weather, which may reflect that the U.S. economy is still too weak to cope with the Fed’s interest rate hikes.

Growth was more mixed in May than it had been in the prior report for March. It was characterized as only “moderate” in four districts (Chicago, Richmond, Minneapolis and San Francisco), “modest” in three areas (New York, Philadelphia and St. Louis regions), mixed in Boston and slight in Cleveland and Kansas City. The overall activity was flat in Atlanta, and it declined in Dallas due to the contraction in the energy sector. Manufacturing presented a much worse picture as it was mostly flat. As we expected, the factory activity reflected in the Beige Book declined in Dallas and Kansas City.

Regarding the labor market, “employment levels were up slightly over the reporting period, with some reports of layoffs”. And wages also rose only slightly. On the real estate market the Fed said that “home prices continued rising and low home inventories continued to constrain sales activity in some areas of the country”.

To sum up, the last Beige Book did not signal any significant rebound in the second quarter. But it reflected an important divergence in economic activity across the country, reflecting the exposure to oil prices. If they fall further, Texas will drag on national economic growth, which could soften the Fed’s stance and support the price of gold.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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