Gold Prices Dip as Strong US Data Weakens Fed Rate Cut Hopes
Thursday, 8/15/2024 16:45
GOLD PRICES fell from earlier gains Thursday afternoon after stronger-than-expected US retail sales and better-than-expected weekly jobless claims reducing bets on sharper cuts to US interest rates,
writes Atsuko Whitehouse at BullionVault.
Spot gold initially increased by 0.6% before erasing all gains, falling to $2447 per ounce as the US dollar and yields soared following the release of strong US economic data. This came after a 1% drop in the previous session following the release of the US Consumer Price Index (CPI).
“Strong retail sales, as well as a decline in jobless claims—both indicators of a strong economy—
caused dollar-denominated gold to fall,” said Bruce Ikemizu, chief director of
Japan Bullion Market Association.
The Dollar Index—a measure of the US currency's value versus its major peers—climbed to its highest level since the beginning of August before the
weaker-than-expected US job report. Meanwhile, ten-year US Treasury yields—a benchmark rate for government as well as many financial and commercial borrowings—also jumped 10 basis points to 3.94%, the highest in nearly a week.
Betting on the end-2024 Fed rates has led to a market’s consensus forecast of 4.4% after today’s data, rising by 0.1% from the last session and by 0.2% since the August 5
Tokyo-led stock market crash.
The odds of a rate cut at the Federal Reserve's September 17-18 policy meeting were evenly split between a half percentage point and 25 basis points on Tuesday. Following today's developments and the CPI data from the last session, futures slightly favoured a 25 basis point cut, with the odds rising to 76%, up from 64% in the previous session and 45% a week ago, according to the CME derivatives exchange’s
FEDWatch tool.
Retail sales rose 1% in July 2024, the most In in nearly a year and a half, surpassing economists forecast of a 0.4% increase, while the figures in June were revised lower to a 0.2% decline, according to
Census Bureau data.
Initial claims for state unemployment benefits dropped 7,000 to a seasonally adjusted 227,000 for the week ending August 10, the Labor Department reported on Thursday. Economists had forecast 235,000 claims for the latest week, the second straight weekly decline.
The CPI of the world's largest economy fell to 2.9% year-on-year in July, down from 3.0% in June, the US Labor Department
published on Wednesday. This marks the smallest annual price increase since March 2021 and is below the 3% that economists had predicted.
On a monthly basis, prices increased by 0.2%, following a 0.1% decline in June, as inflation in shelter, which includes rents, accelerated in July compared with June.
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'The report isn't quite as favourable for disinflation as what occurred in June, but that report set a very high standard,' an
analyst told Reuters regarding the July CPI data.
President of the Federal Reserve Bank of Chicago Austan Goolsbee, a non-voting member of the FOMC, said on Wednesday that he is growing
more concerned about the labour market than inflation.
The
UK gold price in pounds per ounce slipped by 0.3% to £1904 on Thursday as the currency lost its gain against the US dollar in foreign exchange markets, despite recent data indicating that the UK economy remains on an expansion path.
Figures from the Office for National Statistics (ONS) indicate that gross domestic product (GDP) continued to recover from last year's recession, with a growth of 0.6% recorded between April and June. This growth aligns with forecasts and follows a 0.7% increase in the first quarter of 2024.
This supported the recovery from the earlier currency weakness, as Britain’s headline Consumer Price Index (CPI) was lower than expected. The CPI increased from 2% to 2.2% year-on-year, missing the forecast of 2.3%. Inflation in the services sector, closely monitored by the Bank of England, further decreased from 5.7% to 5.2% last month.
Gold priced in Euros increased by 0.5% to over €2334, as Europe’s main stock index rose, with the pan-European Stoxx 600 climbing 1.1% by Thursday lunchtime.
US stocks opened strong on Thursday after the S&P 500 and the Nasdaq Composite recorded their fifth consecutive daily gain in the previous session.
Prices for silver, primarily an industrial metal, which finds nearly 60% of its annual demand from industrial uses, rose 1.6% to $28.01 per ounce, as it was supported by rising copper prices amid fears to supply from
strike action at the world’s biggest mine in Chile.
On Wednesday, the Reserve Bank of New Zealand commenced its easing cycle by lowering the Official Cash Rate (OCR) by 25 basis points to 5.25%, a decision that was not anticipated by consensus. This action follows similar moves by central banks in developed nations, such as those in Canada, Switzerland, the European Central Bank, and the UK.
The next Federal Open Market Committee (FOMC) meeting is set for September 17-18 with the inflation figures for August scheduled to be released a week prior and retail sales data on September 18.
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