- Gold price rally stalls after strong US macroeconomic data.
- US Retail Sales exceed expectations, Industrial Production improved in August, boostinge US Dollar Index (DXY) to 100.92.
- Geopolitical tensions in the Middle East escalate with Hezbollah blaming Israel for recent blasts.
Gold prices fall ahead of the US Federal Reserve’s (Fed) monetary policy decision on Wednesday as the Greenback stages a recovery following a strong (relative to consensus) August US Retail Sales report. Therefore, US Treasury yields advanced, and the buck edged higher, a headwind for the golden metal.
The XAU/USD trades at $2,569, losing 0.50%. Expectations that the Fed will lower borrowing costs by 50 basis points (bps) remain at 63%, while odds for a 25 bps cut are 37%, according to CME FedWatch Tool data.
Data-wise, US Retail Sales were higher than expected, though they trailed July’s number, while Industrial Production improved in August.
TDS Senior Commodity Analyst Daniel Ghali noted that Gold’s last leg up “may have been a stop hunt, given the odd timing for an incursion into new all-time highs alongside evidence of new shorts being added by proprietary traders.”
At the time of writing, the US Dollar Index (DXY), which tracks the buck’s value against another six currencies, advanced 0.21% to 100.92, a headwind for Bullion prices. Meanwhile, US Treasury yields along the short and long ends of the curve rose.
Meanwhile, the Middle East conflict is at the risk of a possible escalation. Al-Jazeera reported that Lebanon’s Hezbollah blamed Israel for the spree of pager explosions, saying it will get “its fair punishment.”
US Department of State spokesperson Mathew Miller said the United States was not involved in the incident and did not know who was responsible.
Looking ahead, the US economic schedule will feature housing data ahead of the Fed's interest rate decision and Chair Jerome Powell's press conference on Wednesday.
Daily digest market movers: Gold price falls following US Retail Sales, Industrial Production reports
- US Retail Sales in August rose by 0.1% MoM, surpassing expectations of a -0.2% decline. Annually, Retail Sales grew by 2.1%, down from July's 2.9%.
- Industrial Production increased by 0.8% MoM in August, rebounding from a -0.9% contraction in the previous month.
- Data from the Chicago Board of Trade suggests the Federal Reserve is expected to cut at least 111 basis points this year, according to the fed funds rate futures contract for December 2024.
XAU/USD technical outlook: Gold price dips below $2,570
Gold prices remain upwardly biased despite retreating somewhat. The precious metal is about to form a three-candle ‘evening star’ — a bearish chart pattern. In the short term, momentum favors sellers as portrayed by the descending Relative Strength Index (RSI), breaking a previous peak level and indicating bears' strength.
In that outcome, Bullion prices could be set to test the $2,550 psychological barrier. Once cleared, the next stop will be the August 20 high, which turned support at $2,531, before aiming toward the September 6 low of $2,485.
Conversely, the XAU/USD uptrend will resume if buyers drag prices to the all-time high of $2,589. If surpassed, further upside could be expected with the psychological levels of $2,600, $2,650 and $2,700.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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