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Never Underestimate The Purchasing Power Of The Us Consumer.

Stephen Innes

The survey indicated that holiday sales rose by 3.4 % from 2018. But it was the online shopping bonanza where sales rose more sharply by 18.8 % that splashed the NASDAQ with a serious amount of gasoline propelling the index above the 9000 level for the first time

Consumers are behind the most substantial chunk, by far, of economic activity in the United States, and their willingness to open the purse strings has offset declining business investment in the face of the trade war and economic uncertainty. Much like the Energizer Battery’s Mascot, they keep going and going and going and going.

Oil markets

US oil prices climbed to a three-month high as optimism about trade helped the outlook for global growth and with it the demand for oil while the US consumer is showing few signs of tightening their purse strings, which is positive for oil also.

Despite headwinds from the trade war, US consumers continue to spend spend spend, which by extension suggests their unquenchable demand for gasoline is unlikely to dry up any time soon. Consumers are responsible for the most significant chunk of US GDP and have single handily bolstered the US economy throughout 2019. And since they continue to spend, its the most straightforward signal that US consumer sentiment remains alive and well and a convincing sign for oil bulls.

Gold markets

The Russians are coming!

Gold is marching to the beat of its drummer possibly getting influenced by supply and demand factors as Russia’s central bank, and National Wealth Fund could be lining up at the mint in early 2019

Central bank buying is, of course, relevant to the supply/demand dynamic for the metal but is much more critical in terms of sentiment toward the metal. And this could be driving current price action as Russia, a gold producing stalwart could start to hoard gold, which could crimp global supplies. If Vladimir Putin’s pursuit of snapping Russia’s reliance on the US dollar comes to fruition, it could trigger a significant gold rush. 

The central bank gold-buying spree is expected to continue into next year as countries build a hedge against geopolitical risk and diversify their reserves away from the US dollar. On top of that, gold is becoming scarcer, and production and mining are getting more costly.

When news broke that Russia might consider investing part of its National Wealth Fund in gold; it brought back memories of late 2018 when the PBoC started to de-dollarize a chunk of reserves into gold. Last December, the PBoC gold purchases was one of the most unambiguously bullish signals for gold investors entering 2019. 

And while the US dollar remains the reserve currency of choice but with Russia planning to diversify its foreign currency holdings in 2020, and to which gold is likely a significant chunk of that de-dollarization, strategic gold bulls could be quietly moving back into gold.

But a word of caution, over the holiday period, trading volume and activity is thin, which can exaggerate gold market moves.

Currency markets

The Aussie dollar 

I never thought I would be saying this in the same sentence. Still, in one of the oddest holiday surprises, the Australian dollar is getting supported by higher gold prices and positive risk sentiment around the P1 deal.  

(Gold is marching to the beat of its drummer possibly getting influenced by supply and demand factors as Russia central banks and the national wealth fund could be lining up at the mint in early 2019)

The Ringgit

The Ringgit continues to trade favorable on the back of trade deal calming rhetoric, boosting local risk sentiment, a stronger Yuan, a key regional risk barometer, and robust oil prices.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader

This article was originally posted on FX Empire