A tale of two economies, and gold is caught in the middle

[View this email in your browser]( [Youtube]( [Kitco Metals]( Editor's Picks [@neils_C]( Questions regarding potential Federal Reserve rate cuts continue to dominate financial markets and [gold]( in particular. Healthy economic data this week has caused investors to sharply pare back their expectations for a potential rate cut. Economic data this week showed that [holiday spending last month was extremely robust]( and that consumers remain relatively resilient to stubborn inflation and the Federal Reserve’s aggressive tightening. That trend could remain in place after [the University of Michigan said on Friday that its preliminary consumer sentiment survey rose to its highest level since July 2021.]( At the same time, one-year consumer inflation expectations have fallen back to pre-pandemic levels. While there is not a great correlation between consumption and consumer spending, studies show that optimistic consumers traditionally spend more money, which drives economic activity. Putting these two reports together doesn’t paint a positive picture for gold, as investors have expected weak economic growth to force the Federal Reserve to cut rates even as inflation remains above their 2% target. This data shows that despite the risks and headwinds, the U.S. economy remains reasonably healthy; at the same time, if inflation continues to weaken, the U.S. central bank has no urgency to ease its monetary policy. According to the CME FedWatch Tool, markets see a roughly 50/50 chance of a March rate hike, which is sharply down from last week, when markets saw an 80% chance of a cut next month. This has created some solid selling pressure in gold; however, the precious metal has managed to hold support above $2,000 an ounce as the data is not so cut and dry. We can definitely use Charles Dicksen’s famous line to describe the economic data this week because it has truly been the best of times and the worst of times. [Data from the New York Federal Reserve and the Philadephia Federal Reserve show that the manufacturing sector is not holding up as well as consumers.]( [This past week the New York regional central bank said its manufacturing survey collapsed, falling to -43.7]( its lowest level since May 2020, when the economy ground to a halt because of the COVID-19 pandemic. While the data from the Philly Fed wasn’t as dramatic as its Eastern counterpart, it did highlight continued weakness in the manufacturing sector. How long can U.S. consumers continue to buy if other parts of the economy are fragile? This is the tug of war that gold is caught in. The U.S. economy may be slowing, but it isn’t collapsing, so there is no urgency to hold a safe-haven insurance policy. But there is still a lot of uncertainty to support prices. We are still in the first month of the new year, and a lot can happen in a very short period of time. The advice we are hearing from a lot of analysts and market strategists is that potential gold investors will need to be patient until clear trends in the economy start to emerge. At the same time, analysts continue to see solid buying opportunities on any major dip in the market. Some analysts see a potential push below $2,000 as a new buying opportunity. Neils C. Editor's picks [Everything Bubble to Finally Burst? Watch These 2 Signs Confirming Huge Crash Has Begun – Harry Dent]( Bubble to Finally Burst? 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