Gold price slips as US Retail Sales beat expectations
- Gold price falls as expectations of a Fed rate cut in September decline, supporting yields and the US Dollar.
- US Retail Sales data beats estimates, a sign that consumer spending has improved.
- XAU/USD falls into a narrow range, with a breakout above $3,371 or a drop below $3,292 likely to define the next directional move.
Gold (XAU/USD) is experiencing a pullback in the European session on Thursday as traders digest US Retail Sales data and await further comments from Federal Reserve (Fed) officials. The yellow metal trades near $3,315 at the time of writing, losing almost 1% in the day.
With the timing of when the Federal Reserve will cut interest rates still uncertain, several members of the central bank are scheduled to speak throughout the day. Comments from Governor Adriana Kugler, San Francisco President Mary Daly, Governor Lisa Cook, and Governor Christopher Waller will be monitored closely.
If investors anticipate that rates will remain higher for longer, there would be increased demand for US Yields, which does not bode well for non-yielding assets such as Gold.
Additionally, bullion serves as a safe haven during times of economic uncertainty. This brings the US economic calendar into focus. On Thursday, US Retail Sales data for June, beat estimates, rising 0.6% in June, above the 0.1% expected by economists. This marks a positive turn for consumer spending trends, which contracted by 0.9% in May. Jobless Claims also came in better than expected, further supporting the US Dollar and weighing on Gold.
Daily digest market movers: Gold awaits key Fed speak as uncertainty over the timing of rate cuts lingers
- The Retail Sales Control Group, which excludes volatile components such as autos, gas, and building materials, provides a clearer picture of core consumer spending. It is considered a more accurate gauge of underlying retail activity and overall consumer demand. The increase of 0.5% in June after a 0.2% rise in May signals stronger consumer spending, which typically supports economic growth.
- The minutes from the June Federal Open Market Committee (FOMC) Meeting showed that the majority of Fed members remain hesitant to pivot away from their restrictive stance without clearer signs of disinflation. As the labour market has shown signs of resilience, the implications of tariffs on inflation remain a key concern. This hawkish tone from members has weighed on Gold, which typically moves inversely to both interest rates and the US Dollar.
- US Consumer Price Index (CPI) for June, released on Tuesday, reflected persistent inflation at the consumer level, particularly with core inflation rising to 2.9% YoY from 2.8% in May, shifting further away from the Fed’s objective target of 2%. This suggests that price pressures remain elevated, especially in services and essential areas, which the Fed closely monitors.
- In contrast, US Producer Price Index (PPI) data on Wednesday showed no monthly growth and a slowdown in yearly terms. This suggests that upstream input costs are easing, which may eventually be reflected in lower consumer inflation, although not immediately.
- According to the CME FedWatch Tool, the probability of an interest rate cut at the September meeting currently stands at 52.4%, while the prospects of the Fed leaving rates steady in the 4.25%-4.50% range at the same meeting rises to 46.3%.
Technical analysis: Gold remains rangebound between $3,300 and $3,400
Gold price has dipped below the 50-day Simple Moving Average (SMA) at $3,323, with the 20-day SMA providing resistance at $3,331.
As price action remains within the confines of a symmetrical triangle pattern on the daily time frame, the metal remains range-bound.
The $3,300 psychological level continues to provide support, with the 38.2% Fibonacci retracement level of the April low-high move just below around $3,292. A deeper pullback could open the door for an extended downward move to the 50% Fibonacci retracement near $3,228 and toward the next psychological level of $3,200.
Gold (XAU/USD) daily chart
For the uptrend to gain traction, a break of the 20-day SMA and above triangle resistance at $3,360 is required. The next resistance level rests at the 23.6% Fibonacci retracement at $3,372, followed by Monday's high of $3,375 and the $3,400 psychological level into focus.
The Relative Strength Index (RSI) at 48 reflects a lack of decisive momentum.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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