Retail apocalypse and gold

December 21, 2017 11:17 AM

Retail stores have been disappearing from the U.S. economy in 2017. What does it mean for the gold market?

Writing about the retail apocalypse during Christmas time may be a bit odd, but the numbers do not lie. From January to September 2017, 6,752 locations, excluding grocery stores and restaurants, were scheduled to close. It’s more than twice compared to the 2016 total and very close to the all-time high of 6,900 in a crisis 2008.

What are the reasons behind the closures of retail stores? It is hard to say. One thing is the dynamic growth of Amazon and the development of e-commerce. But another issue is the debt overload among retailers often from leveraged buyouts. Refinancing becomes more and more difficult with rising interest rates. It implies that the Fed’s tightening – or the previous period of ultra low interest rates – has some negative effects. And rising costs of education, healthcare and housing left less money for retail shopping. Another factor is an over-supply of malls.

What does it all mean for the gold market? Well, the decline in the number of retail stores may negatively hit the U.S. economy, which should be positive for the yellow metal. However, the sky is not falling. Mall occupancy remains strong and a lot of stores are opening. It seems that the market is just evolving as there are important structural changes – apparel and electronic stores are hit, but not all stores. And healthy retailers will replace the bankrupts.

Hence, it does not seem that the gold market will be significantly affected by the so-called retail apocalypse. However, it is worth remembering that  intense competition resulting from the presence of e-commerce may lower inflation. Low inflation is negative for gold prices, unless it translates into a more dovish Fed. Stay tuned!

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