The price of gold (XAU/USD) experienced an upward trend on Wednesday following the release of disappointing US Consumer Price Index (CPI) and Retail Sales data for April. These figures, which fell below economists’ expectations, suggest that the Federal Reserve (Fed) may consider lowering interest rates sooner than previously anticipated. This expectation of lower interest rates is positive for gold, as it reduces the opportunity cost of holding a non-yielding asset.
The key data points from the US reports are as follows:
US headline CPI increased by 0.3% in April, falling short of the expected 0.4% and the previous month’s 0.4% rise. Year-over-year, CPI met expectations with a 3.4% increase, slightly lower than March’s 3.5% YoY.
US CPI excluding Food and Energy aligned with expectations, rising by 0.3% month-on-month in April and 3.6% year-over-year. However, these figures were slightly lower than the 0.4% and 3.8% of the previous month, respectively.
US Retail Sales in April significantly underperformed expectations, recording 0.0% growth compared to the anticipated 0.4%. This decline from March’s 0.6% growth, as reported by the US Census Bureau, raises concerns about the health of the US economy and may prompt Fed officials to consider interest rate cuts.
The combination of disinflation indicated by the CPI data and stagnant Retail Sales could prompt the Fed to act swiftly in considering interest rate cuts. Such a move would likely weigh on the US Dollar (USD) but would be supportive for gold prices.
The response in the gold market underscores the sensitivity to macroeconomic data releases and the potential impact on monetary policy decisions. Investors are closely monitoring developments in US economic indicators and Fed statements for further clues on the trajectory of interest rates and their implications for gold.
