US Economy Starts 2023 with Stagflationary Flavor: What Does This Mean for Gold and Silver?
The US economy has started the year 2023 on a disappointing note, with business activity in both the manufacturing and services sectors contracting sharply in January. Despite economic data released this past week showing that consumer demand was falling and wholesale prices were cooling, the Federal Reserve’s policy tightening efforts appear to be working.
In January, the US Services Business Activity Index rose to 46.6 from 44.7 in December 2022. Retail sales fell by 1.1%, following a 1.0% decline a month earlier, and Real Retail Sales fell at a -2.5% annual rate in Q3 and Q4. Industrial Production dropped by -0.8% in December, following a decrease of -0.6% in November.
The Fed is expected to raise rates by 0.25 percentage points on Wednesday, and the market is split over whether to raise rates by a further 0.5 percentage points or step down to a quarter-point increase. However, the data indicates that the private sector contractions continued into the new year and that inflationary pressure is increasing, creating a stagflationary flavor.
What does this mean for gold and silver outlook for 2023? The price of gold has been rising recently on hopes of a more dovish monetary policy and a Fed pivot. Any hawkish surprise could send gold prices down, but the dovish outlook is more likely considering that the most prominent hawks aren’t voting in 2023. Ultimately, it’s too early to declare the comeback of inflation as input costs accelerated, but it hasn’t translated into higher output prices yet.
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