Inflation is falling, gold is screwing up the bullish outbreak

Some economic data was released in the United States again yesterday. They turned out to be terrifying. Now this is hardly surprising, as it is not the first data with a negative record. But the relation scared and amazed me.

Less consumption, more savings

For a comparison, I would like to briefly remind you of Börse-Intern from April 21st. At the time, I wrote that the economy will take a long time to return to its pre-crisis level because people will consume less and save more in the foreseeable future. “DZ Bank expects the savings rate in Germany to increase to 12.5% ​​this year, from 10.9% in 2019“It said. And further: “And due to the loss of income in connection with the increased propensity to save, consumption will shrink, possibly by 2.8% in Germany, which, according to DZ Bank, would be the worst slump since reunification.“- The figures again briefly: savings rate 12.5%, consumption decline 2.8%.

And now to the current figures from the United States: Consumption (personal expenses) there fell in April by 13.6% compared to the previous month, as the US Department of Commerce announced today. There has not been a major minus since the start of statistics in 1959.

USA - personal expenses

In March it was already 6.9% less consumer spending. The reason for this is the mass unemployment caused by the spread of the coronavirus and the measures adopted to contain the pandemic. This is particularly dramatic for the United States because consumption accounts for more than two-thirds of gross domestic product (GDP). GDP is therefore expected to decrease by up to 40% in Q2 2020.

Instead of putting the money in stores, people hoarded it into their accounts. In the United States, the savings rate rose to 33.0% in April, after having been at 12.7% in March. – The figures again briefly: savings rate 33.0%, consumption decline 13.6%.

Changed behavior is a permanent burden on the recovery

Now, however, I have to admit that the figures for Germany are annual values ​​and the current figures from the USA represent the change from the previous month. But that doesn’t change the fact that the data is dramatic and that it confirms my fears. We will get similar numbers in this country too. And I assume that people will not change their behavior again in two months, but that the changed propensity to consume and save will continue for a while. A rapid V-shaped recovery is therefore still unlikely – and the current price recovery of the stock indices is therefore a clear exaggeration. Investors’ hopes of a rapid economic recovery, which is behind the rise in prices alongside the flood of liquidity, will not materialize.

Falling consumption leads to low inflation

Likewise, gold investors’ hopes that inflation will rise due to the liquidity flood will not materialize – at least not for the foreseeable future. Instead, according to an initial Eurostat estimate, annual inflation in the euro zone even fell to just 0.1% in May, after only 0.3% in April.

Eurozone inflation

The main reason for this is the slump in oil prices, which made energy cheaper by 12% compared to the previous year.

Eurozone inflation - individual components

Since such volatile prices are factored out of core inflation, it remained stable at 0.9%. But it too is far from the European Central Bank’s target of 2%.

An escape to gold is not yet necessary

And this development is certainly not (yet) a reason to flee from gold for fear of rising inflation. Inflation is now likely to have bottomed out, partly because oil prices have risen again, but prices are not expected to rise sharply due to the consumption and saving figures mentioned above.

Gold screwed up the bullish breakout

I had argued quite similarly on May 12th – see “That is why the gold price should be viewed with skepticism”. And so it should not come as a surprise that the gold price after its bullish breakout from the pennant formation (see blue lines in the following chart and stock exchange internal from May 20) could not continue to increase, but fell back into the formation and thus the bullish signal was neutralized (red circle).

Gold chart analysis

From a technical point of view, this is not yet critical. An attack on the 2011 high of around $ 1,900 is still possible. Because only a bullish signal was neutralized, but no bearish was sent yet. The bulls can get back into the game quickly. A bearish signal is only generated when the low of the pennant formation on April 21 drops below USD 1,661. Then you should be careful. Long positions could still be hedged in this area with a stop loss.

In addition, the same applies: “And if the gold price falls below $ 1,532.80, I see the upward trend as at risk. Then I expect more of a large sideways tendency of the precious metal or long-term only moderately rising prices with larger price fluctuations in the medium term.

I wish you much success with your investment
Sven Weisenhaus


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