- Gold price recovery stalls after the release of the US Retail Sales and PPI data.
- US Retail Sales contracted at a slower pace of 0.1% against estimates of a 0.3% decline.
- US monthly headline PPI surprisingly contracted by 0.5% while economists projected a 0.1% gain.
Gold price (XAU/USD) faces selling pressure after a slower-than-projected decline in the United States Retail Sales data for October. Monthly Retail Sales declined by 0.1% against expectations of a 0.3% contraction. In September, the economic data rose by 0.7%.
US monthly headline Producer Price Index (PPI) in October logged the steepest decline since April 2020 due to a significant fall in gasoline prices. In the same period, the core PPI remained stagnant.
The broader demand for the precious metal remains upbeat as easing price pressures in the US economy have dented bets of further policy-tightening by the Federal Reserve (Fed). On Tuesday, the precious metal capitalized on slow growth in the US headline inflation, which decelerated due to a sharp fall in gasoline prices. The soft US inflation report for October indicates that current interest rates set by the Fed are adequate to bring down inflation to 2%.
The US Dollar and bond yields are broadly down as the soft Consumer Price Index (CPI) has underpinned a risk-on impulse. Easing consumer and producer inflation has boosted confidence among investors in the possibility of early rate cuts by the Fed.
Daily Digest Market Movers: Gold price faces pressures after US data
- Gold price aims to extend recovery above $1,970.00 as a substantial decline in the US consumer inflation in October indicates that the Federal Reserve will likely not raise interest rates further.
- The US inflation data for October, released on Tuesday, indicated that headline inflation decelerated significantly. The annual headline CPI rose by 3.2%, softened from estimates of 3.3% and the former reading of 3.7%. This was the slowest growth in headline inflation in more than two years.
- A significant decline in the headline inflation rate was prompted by a sharp fall in global Oil prices.
- Rental prices continued to rise in October but at a slower pace than in September. Food and grocery prices expanded at a higher pace of 0.3%.
- Monthly core inflation, which takes out volatile Oil and food prices grew by 0.2% against estimates – and September’s growth rate – of 0.3%. Annual core inflation rose by 4.0%, decelerated from expectations and the prior release of 4.1%.
- Though core inflation declined more than expectations, the pace of decline was nominal, which indicates lingering stickiness. This remained a major concern for Federal Reserve policymakers last week, which forced them to lean toward raising interest rates further.
- Last week, Federal Reserve Chairman Jerome Powell commented that the central bank won’t hesitate in tightening monetary policy further as a failure to control inflation would be their biggest mistake.
- After the release of the US inflation data, Richmond Federal Reserve Bank President Thomas Barkin, speaking at an event in South Carolina, said the core inflation was partly offset by supply shortages.
- Thomas Barkin added that the central bank is making real progress on inflation but is not convinced inflation is on a smooth glide path back to its 2% target (for Core CPI). Barkin warned that the Fed needs to do more to curb demand and inflation.
- Latest inflation figures have turned the tide in favor of keeping interest rates unchanged by the Fed in the range of 5.25-5.50%. Economists hope that the Fed is done with hiking interest rates and that discussions about cutting interest rates will be early.
- The US Dollar Index (DXY) catches action near a two-month low around 104.00 after the release of the US Retail Sales.
- Monthly retail demand contracted at a slower pace of 0.1% while economists forecasted a decline of 0.3%. In September, Retail Sales gained by 0.7%.
- The decline in Retail Sales is majorly contributed by lower demand for automobiles as higher interest rates hit the cost of living of households. Retail Sales ex-autos gained by 0.1% while investors anticipated a stagnant performance.
- The US PPI report for October declined at a faster pace due to falling gasoline prices. Monthly headline PPI surprisingly deflated by 0.5% against estimates of growth by 0.1%. The annual PPI data rose by 1.3%, against expectations of 1.9% and the prior reading of 2.2%.
- Monthly core PPI remained stagnant against growth of 0.3% as forecasted. Annual core PPI rose by 2.4%, slower than expectations and the former release of 2.7%.
- Investors await US President Joe Biden’s meeting with China’s President Xi Jinping at the White House will be keenly watched. Discussions about the Israel-Palestine war are widely anticipated.
- Gains in Gold could be limited due to risk-on mood and easing Middle East tensions.
Technical Analysis: Gold price falls to near $1,960
Gold price edges down to near $1,960.00 after failing to sustain above $1,970.00. On a daily timeframe, the precious metal resumed its upside journey after discovering significant buying interest near the 50-day Exponential Moving Average (EMA). The recovery in Gold has been extended above the 20-day, which indicates that the broader appeal has turned extremely bullish.
Interest rates FAQs
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.
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.
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.
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.
