Gold price refreshes five-week low, US Retail Sales eyed

Gold price (XAU/USD) continues its bleak performance amid headwinds of a strong US Dollar and higher US Treasury bond yields. The precious metal remains under pressure as consumer and producer inflation grew modestly in July but failed to uplift chances of further policy tightening by the Federal Reserve (Fed).

The 0.2% monthly increase in the United States Consumer Price Index (CPI) in July is in line with the Fed’s required annual inflation rate of 2%, which keeps policymakers comfortable. The rise in consumer inflation, mainly driven by higher rentals, could allow the Fed to go light on interest rates and contribute to easing recession fears. This week, Gold price action will likely be guided by the US Retail Sales data for July, which will be published on Tuesday at 12:30 GMT.

Daily Digest Market Movers: Gold price declines as US Dollar shines

• Gold price seems to be declining toward the crucial support of $1,900 amid sheer strength in the US Dollar despite the fact that the Federal Reserve is expected to keep interest rates unchanged in September.
• The US Dollar Index (DXY) refreshes its five-week high around 103.00 as the market mood remains cautious after US equities turned expensive.
• Gold price also remains under pressure due to higher US bond yields, with 10-year US Treasury yields hovering around 4.16%.
• In July, both US consumer and producer inflation rebounded despite restrictive monetary policy and tight credit conditions by US commercial banks.
• Despite the rebound, US consumer inflation grew at a  slower-than-expected pace as higher rentals were offset by a decline in the cost of second-hand automobiles.
• Around 90% of the contribution to inflation was driven by higher shelter prices. This indicates that the Fed doesn’t need to raise interest rates further as prices of durables and non-durables are still declining.
• No more interest rate hikes clearly recedes fears of a recession in the United States.
• US Producer Price Index (PPI) rose 0.3% in July on month, higher than expectations of 0.2%, as the cost of services rebounded at the fastest pace in nearly a year. The Department of Labor reported that goods prices excluding oil and food prices remained unchanged.
• In spite of a rebound in US CPI and PPI, keeping interest rates on hold is likely to be considered by Fed policymakers as July’s monthly inflation pace aligns with the Fed’s desired rate of 2%.
• Consumer inflation expectations for the next five years softened to 2.9% in August, less than expectations and the former forecast of 3.0% as the central bank is expected to keep interest rates elevated for a longer period, according to data from the University of Michigan Consumer Sentiment survey.
• Meanwhile, the preliminary Michigan Consumer Sentiment index slipped to 71.2 from 71.6 in July but remained above the forecast of 71.0.
• "In general, consumers perceived few material differences in the economic environment from last month, but they saw substantial improvements relative to just three months ago," said Joanne Hsu, director of the University of Michigan's surveys.
• After the Fed’s inflation data, investors shift their focus towards the US Retail Sales data for July. Retail sales are seen expanding by 0.4% in July, accelerating from the 0.2% increase recorded for June.  A similar performance is expected for retail sales excluding autos.

Technical Analysis: Gold price hits fresh five-week low

Gold price declines consistently and is expected to test the round-level support of $1,900.00. The precious metal falls sharply as the 20- and 50-day Exponential Moving Averages (EMAs) delivered a bearish crossover. The Relative Strength Index (RSI) (14) slips below 40.00. The absence of divergence and oversold signals in the RSI (14) suggest more weakness ahead. Gold price forms consecutive Inverted Hammer candlesticks. A breakdown below the $1,910.00 support might trigger a fresh sell-off.