The Bureau of Economic Analysis (BEA) released its estimate for the second quarter of 2016. After a weak showing in the first quarter, many pundits predicted strong economic growth for April, May, and June. However, the reality was a modest 1.2% growth to GDP. In this month's Schiff Report, Peter explains how these numbers could affect gold stocks and precious metals.
More importantly, the estimated numbers for the first quarter were revised downwards, as was the last quarter of 2015. When averaged together, the overall growth is less than 1%. Revisions are part of determining real GDP, as opposed to nominal GDP. What gets factored into real GDP estimates are inflation numbers.
What also went down significantly is the Fed's credibility, especially given the rosy economic picture they painted with last week's FOMC statement. The reality is that rising inflation is much worse than the government data crunchers and the Fed would like to admit.
"If we had a more realistic inflation measure I think that not only would have the second quarter come in negative but the two prior quarters as well," Peter Schiff explains.
During its first rate hike last December, the Fed claimed it was data dependent and the economy numbers were finally good enough to raise rates. But the fact is the economy was slipping back into a recession. The market's reaction to the GDP numbers was swift, with the dollar index dropping a full point.
However, as Peter explains, gold and silver did well:
Gold on the other hand hit a new high. We closed above $1,350 on a monthly chart for the first time this year … Silver closed above $20 an ounce. This is also the first time silver has been above $20 on a monthly closing basis. Gold stocks also finished the month on the highs. Not only is this a new high for the year on the gold stocks, it's a new high for three years."
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I am a precious metals specialist for SchiffGold.