- Stronger retail sales after tepid US CPI in July put the Fed on the hawkish side.
- Gold spot might fall as low as $1,846 if the Dollar Index surges above 103.
- Bullion might retake the $1,960 mantle if the dollar declines to well below 103 cents.
We stated a few weeks ago that a strong US dollar, despite of the inflationary data for July, might push the spot price of gold below the crucial support level of $1,900 per ounce. The spot price, which records bullion trading in real-time under the trade symbol XAU, was then recovering from a one-month low below $1,922. Some gold dealers keep a closer eye on XAU than futures, which go by the symbol GC. In fact, the US Consumer Price Index’s annual rise of 3.2% in July, which was slightly below the projected 3.3% and slightly higher than June’s 3.0%, had little impact on the dollar’s recovery from 15-month lows.
On July 18, the Dollar Index—abbreviated DX—fell to 99.22, its lowest level since April 2022. DX is currently hovering just at 103. On the other hand, XAU just fell below $1,897, reaching its lowest level since June 29. On the futures side, the December front-month GC contract on the New York Comex was trading at $1,895 on Tuesday, not dissimilar to the spot price. December gold had risen to about $1,935 at the time of writing. But XAU remained below $1,905. The spot price is more keenly watched than futures in part because it is susceptible to another break below $1,900. However, Tuesday’s retail sales reading for July sent a stronger hawkish message to the Federal Reserve, but the July CPI data created more questions than it did answers about how the central bank could react to the most recent US inflationary numbers.
According to data released by the Commerce Department on Tuesday, US retail sales surpassed forecasts by expanding by twice as much in July as they did in June. This data also increased predictions that the Federal Reserve will contemplate another rate hike in September to combat the inflationary pressure brought on by unusual spending. At least 70% of the US economy is made up of consumer expenditure, and in addition to their earnings, Americans’ purchases of food, fuel, and goods are among the major contributors to inflation. In contrast to June’s 0.3% growth, retail sales increased by 0.7% in July, according to the Commerce Department. Wall Street analysts had predicted a growth of just 0.4% for the previous month. Despite the Fed’s aggressive interest rate increases to control inflation, American demand for commodities, food, and other items has remained strong. The central bank increased interest rates by 5.25% over just 18 months from its prior base of 0.25%, the biggest in 22 years.
The Fed will make its next rate decision on September 20. Following the release of the July retail sales figures, money market traders raised their projected rate increase of 0.25% from below 10% to 12%. Before making its rate decision in September, the central bank has stated that it will review a lot more data over the ensuing six weeks. The Fed attributed the runaway inflation from a year ago to strong wage growth and job creation, as well as trillions of dollars in relief spending related to the 2020 coronavirus pandemic. Even if the spending pandemic is over, inflation has been fed by job growth and salary increases, which has pushed the Fed to keep raising interest rates. Even while the CPI’s annual growth rate of 3% in July was the lowest in the previous two years, it was still much higher than the Fed’s target rate of merely 2%. On Wednesday, DX held near a 1-1/2-month high, rebounding significantly from 2023 lows over the previous month. The Fed is anticipated to hold interest rates at over 20-year highs until at least mid-2024, even if it doesn’t raise them further. This presents a bleak picture for gold and other non-yielding assets.
Please note that this article does not offer any instructions or suggestions regarding investment decisions. Therefore, it is essential that you carefully evaluate your financial situation and conduct thorough analysis, or seek advice from a qualified professional, before making any investment decisions.