Yesterday, the March Summary of Commentary on Current Economic Conditions by Federal Reserve District, commonly known as the Beige Book, was published. It is a collection of anecdotal observations from each of the Federal Reserve's 12 business districts regarding the current economic outlook in their region. What are the implications of this document, which summarizes comments received from business, for the gold market?

The report indicates that economic activity in the United States continued to expand. According to the publication, half of the twelve Fed districts saw moderate growth with modest gains reported in the rest of areas through mid-February. Therefore it is a rather bearish publication for gold investors, because it means that the U.S. economy revives, which may accelerate the Fed’s hike (the information contained in the beige book will be used during the central bank meeting on March 17 and 18).

On the other hand, “wage pressures remained moderate and were limited largely to workers in skilled occupations,” the report said. As we have already written, wage growth is a key indicator of the inflation dynamics for the Fed’s officials. It is, thus, another premise for Yellen’s patience, especially since “most District contacts cited only flat to slightly increasing prices.”

With respect to the remaining data, consumer spending, manufacturing and home sales generally rose, while reports on residential construction were mixed. Agricultural conditions worsened and energy activity declined due to lower commodity prices.

To sum up, the U.S. economy seems to be recovering (at least compared with other economies), although investors should not forget about the many downside risks, such as the problems in the energy industry, the possible burst of the stock market bubble or the fragility of the global economy. Although the March Beige Book reported moderate economic growth, the flat payrolls (as well as the worldwide central bank easing – just two days ago the Reserve Bank of India cut its main interest rates for the second time in two months) offer some comfort to gold investors hoping the Fed will raise rates later rather than sooner.

Thank you.

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

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