- Gold price falls as Fed Kugler reinforces hawkish stance.
- Retail Sales beat and Jobless Claims drop suggests that the economy remains resilient, supporting US yields.
- XAU/USD dips as psychological support firms at $3,300.
Gold (XAU/USD) is experiencing a pullback on Thursday as traders digest US Retail Sales data and await further comments from Federal Reserve (Fed) officials. The yellow metal trades near $3,330 at the time of writing, down 0.6% 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.
Comments from Kugler that it would be appropriate to keep interest rates steady “for some time” reinforcing expectations that rate cuts may only take place in the last quarter of the year.
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 sits at 44.3%.
Technical analysis: Gold remains rangebound between $3,300 and $3,400
Gold price is currenlty trading near 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 49 reflects a lack of decisive momentum.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
