Gold rallies as weak US data dents Fed hike bets
- Gold rises as Dollar slides on softer inflation and sales data.
- Retail Sales slump reinforces September Fed hold expectations.
- Hormuz calm and lower hike odds support Bullion recovery.
Gold price registers solid gains of nearly 0.90% on Friday as the US Dollar weakens across the board, following a week that featured softer inflation data, which decreased the chances for a rate hike by the Federal Reserve (Fed). The XAU/USD trades at $4,386, still below the $4,400 threshold.
XAU/USD gains as weak US data curbs September Fed hike bets
The US Dollar Index (DXY), which tracks the value of the American currency against six other currencies, is down 0.4% to 99.57, as investors trimmed Fed-hawkish bets ahead of the September meeting.
US inflation data on the producer and consumer side eased in July. The evolution of the disinflation process, the modest rise in Initial Jobless Claims and the drop in Retail Sales were the reasons that triggered the US Dollar sell-off during the week.
On Friday, Retail Sales snapped a five-month streak of growth, declining 0.6% and missing estimates for a 0.1% expansion. Sales within the Control Group, which are used to calculate consumer spending in the Gross Domestic Product, declined by 0.4% after a 0.4% increase in June, according to the US Commerce Department.
The University of Michigan Consumer Sentiment deteriorated further in August’s preliminary reading, from 55.2 to 51.0. Inflation expectations for one year rose from 4.2% to 4.3%, while those for five years remained steady at 3.3%.
The lack of headlines about the Middle East provided another leg up for Bullion. The US Treasury Secretary Scott Bessent commented that they will implement unprecedented measures on Iran to pressure the regime. Meanwhile, the Strait of Hormuz remained closed, though Oil prices had failed to rally sharply.
In the meantime, the fall of US yields is a tailwind for Gold prices. The US 10-year Treasury yield is up 3.5 basis points to 4.684%.
The swaps markets currently assign a 31% probability to a rate hike at the September meeting, down from roughly 55% last week, according to Prime Terminal data.
Next week, the US economic docket will feature housing data, the ADP Employment Change 4-week average, jobless claims and Flash PMIs.
XAU/USD technical analysis: Gold struggles at 100-day SMA, to trade sideways
From a technical perspective, Gold is poised to consolidate around the 100-day Simple Moving Average (SMA) at $4,386. Momentum remains bullish, as depicted by the Relative Strength Index (RSI), but buyers failed to decisively surpass $4,400, opening the door for a pullback.
For a bullish resumption, XAU/USD must climb above $4,400. A breach of it would expose the psychological $4,450, followed by the 200-day SMA at $4,504.
Downwards, the first support is the low of the day (LOD) at $4,311. Below is the $4,300 level, which, if cleared, could exacerbate a move towards the July 6 high at $ 4,202, followed by the 50-day SMA at $4,146 and $4,100.
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.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
