(Kitco News) - The gold market is rallying after the latest data showed American consumers’ spending declining more than expected last month.
U.S. retail sales fell -0.6% in July following an unrevised reading of 0.2% in June, the U.S. Commerce Department announced on Friday.
The data was far worse than expectations, as the consensus of economists projected a 0.1% increase in July’s headline number.
In annual terms, retail sales increased 5.0%, the report said, against expectations for a 6.0% rise and following June’s unrevised 6.7% increase.
Core sales, which strip out vehicle sales, fell -0.3% in July, well below the consensus for a 0.2% gain, and following June’s unrevised -0.2% print.
Spot gold shot to a session high of $4,387 in the moments after the release, and last traded at $4,380.88 for a gain of 0.68% on the session.
Jeffrey Roach, Chief Economist for LPL Financial, told Kitco News that despite the decline in headline retail sales, nominal GDP is still set to grow roughly 6%, this quarter.
"Nominal figures show the trajectory for growth is steady," he said. "The economy grew 6.5% in Q2 from a year ago before adjusting for inflation, fueling a strong earnings outlook. We expect nominal growth in Q3 will be a bit softer but still hit 6% from a year ago. Private payrolls grew by 30,000 in July so we should expect a modest slowdown. But overall, this sanguine report is good for risk appetite."
Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, noted that this is the third report in a row to ease the market's rate hike concerns.
"Of course, 2 of the 3 reports are in the Bad News is Good News category, because a weak Labor report (last Friday) and an even weaker Retail Sales report (this morning) are bad news for workers and consumers, but potentially good news for the stock market because it reduces the urgency at the Fed to raise rates to fight too-high inflation," he told Kitco News. "The economy is highly dependent on consumer spending – close to 70% of GDP can be traced back to it – so it’s a case of be careful what you wish for, because too big a slowdown, and especially too prolonged a slowdown, could end up hurting corporate profits and, in turn, the stock market, but in an environment where inflation can cool down and the Fed can keep rates on hold as a result of that, would be very good for this bull market."
"However, as we approach the seasonally weak September and October months, we would normally expect a bit of a pullback and/or increased volatility," Zaccarelli said, "but this year is a midterm election year and those are especially prone to a swoon before the election, so we are getting more cautious the closer we get to the end of the month."
