This indicator measures sales of retail goods, but does not include money spent on services (except for food services). Hence it represents less than half of total consumption within a month. Nevertheless, the Fed watches it very closely. Retail sales provide relatively new data that is released about two or three weeks earlier than personal consumption expenditures. Actually, the retail sales report is one of the most timely, providing data that is only a few weeks old. This is why the data on retail sales is used to forecast consumer expenditures and GDP (it is a big component of the GDP).
Retail Sales and Gold
Let’s analyze the chart below, which presents the relationship between retails sales and gold prices from 1993 to 2015 (the current series on retail sales starts in 1992).
Chart 1: Retail sales (red line, left scale, annual percent change) and the price of gold (yellow line, right scale, London P.M. fixing) from 1993 and 2015.
As one can see, there is no clear correlation between the percent changes in retail sales and gold prices. Retail sales are volatile, due to the impact of the volatility of motor vehicle sales. They affect gold through changes in expectations of economic growth (GDP) and, thus, the Fed’s policy. According to the IMF Working Paper “The Effects of Economic News on Commodity Prices: Is Gold Just Another Commodity”, retail sales are one of the most influential indicators for the gold market.
The bottom line is that retail sales are widely analyzed by the financial market (as they are released much earlier than Personal Incomes and Outlays). Gold investors also should be aware of them as they provide insight into trends in economic growth and future GDP.
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