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Gold price rebounds as US retail demand remains robust

  • Gold price continues its south-side move amid resilient US Dollar and Treasury yields.
  • Investors await the US Retail Sales data for July, which is seen expanding with higher momentum.
  • An economic slowdown in China improves the appeal of the US Dollar Index as a safe haven.

Gold price (XAU/USD) gauges short-term support despite the United States Census Bureau reporting that consumer spending momentum in July remained resilient. The Retail Sales data grew at a 0.7% pace, significantly higher than estimates of  0.4% and June's reading of 0.2%. Resilience in consumer spending along with a moderate increase in inflation would restrict the Federal Reserve (Fed) from considering rate cuts this year. The precious metal faces the wrath despite elevated hopes of a steady interest rate decision to be taken by the Fed in its September monetary policy. The context that the Fed will keep interest rates higher for a longer period as US economic resilience and a historically low jobless rate will appear as a difficulty in shredding the “last mile” of inflationary pressures.

The next economic trigger that will keep investors busy is the release of the Federal Open Market Committee (FOMC) minutes. The FOMC minutes will provide the interest rate guidance and the inflation outlook.

Daily Digest Market Movers: Gold price finds support as US Retail Sales grow strongly

  • Gold price tests territory below the round-level support of $1,900 as US Retail Sales data turns out more resilient than expectations.
  • US consumer spending data for July expanded at a robust 0.7% pace vs. expectations of 0.4% and June's pace of 0.2%.
  • Retail Sales data excluding automobiles rose sharply by 1.0% against the estimates of 0.4% and June's print of 0.2%. 
  • Scrutiny of the consumer spending data indicates robust demand for durables and necessity goods.
  • 10-year US Treasury yields jump to 4.22% as investors hope that Federal Reserve policymakers will face difficulties getting the economy to 2% core inflation.
  • The US Dollar strengthens as investors lose confidence in China’s economic outlook due to persistent deflation risks.
  • An economic slowdown in China improves the appeal of the US Dollar Index (DXY) as a safe haven.
  • The US Dollar will remain in the spotlight on Tuesday as the US Census Bureau will report the monthly Retail Sales data for July, which will be published at 12:30 GMT.
  • In spite of a slower-than-expected jump in US inflation and a decent increase in the Producer Price Index (PPI) for July, the Fed is expected to keep the interest rate policy unchanged in September.
  • A moderate increase in US inflation is majorly contributed by higher rentals, which indicates that inflation is confidently returning to 2%.
  • No doubt, the Fed is expected to keep policy rates unchanged in September, the context which is hurting the Gold price is the hope that the central bank will keep interest rates elevated for a longer period.
  • Atlanta Fed Assistant Vice President and chief inflation watcher Brent Meyer suggests in a new analysis that the road to 2% inflation may in fact be smooth, rather than filled with the setbacks and difficult choices many Fed officials have said they expect.
  • In the latest survey of consumer inflation expectations by the New York Fed, inflation one year from now will be at 3.5% vs. an expectation of 3.8% recorded in June.
  • On Monday, US Treasury Secretary Janet Yellen said that President Joe Biden's policies are powering historic job growth and rebuilding competitiveness, Reuters reported.
  • This week, investors will also focus on the Federal Open Market Committee (FOMC) minutes, which will be released on Wednesday at 18:00 GMT. Investors would look for cues about inflation and the interest rate guidance for the rest of 2023.

Technical Analysis: Gold price tests seven-week low near $1,900

Gold price continues its declining spell after failing to sustain above the crucial support of $1,910.00. The precious metal is expected to extend its downside toward the $1,900.00 support amid sheer strength in the US Dollar. The yellow metal tests territory below the 200-day Exponential Moving Average (EMA), followed by a bearish crossover from the 20 and 50-day EMAs. Momentum oscillators indicate the activation of a bearish impulse.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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