Gold (XAU/USD) corrected some of its early gains on Tuesday, trading in the $2,440 range following the release of US Retail Sales data. The data revealed that US consumers continue to spend robustly despite high borrowing costs, signaling a resilient economy and the likelihood of sustained inflation. This development could influence the Federal Reserve’s (Fed) future interest rate decisions, impacting gold prices.
Earlier in the day, gold prices had been on the rise, approaching the $2,451 all-time high. This upward movement was fueled by heightened expectations that the Fed might cut interest rates at its September meeting due to cooling inflation in the US.
Gold Pulls Back After US Retail Sales Data
Following the release of the US Retail Sales data for June, gold prices began to pull back. According to the US Census Bureau, Retail Sales remained flat in June, meeting expectations but falling below May’s revised increase of 0.3%.
The Retail Sales excluding Autos increased by 0.4% in June, surpassing the estimated 0.1% increase and the previous revised figure of 0.1%. Additionally, the Retail Sales Control Group, which accounts for seasonal variations and trading day differences, showed a significant rise of 0.9% from May’s 0.4%, providing a more accurate measure of sales.
Gold’s Early Gains Supported by Fed’s Indications
Earlier on Tuesday, gold prices surged following comments from Fed Chairman Jerome Powell. In a speech on Monday, Powell indicated that inflation was making promising progress towards the central bank’s target and hinted at forthcoming interest rate cuts. His remarks led to a significant adjustment in market expectations for the Fed Funds rate trajectory.
The CME FedWatch tool, which calculates probabilities of future rate changes based on 30-day Fed Funds futures prices, now indicates a 100% chance of at least a 0.25% cut in the Fed Funds rate to an upper band of 5.25% in September. This is a substantial increase from the probabilities hovering just above 60% prior to Powell’s comments.
This shift in outlook follows US inflation data, with the Consumer Price Index (CPI) for June falling to 3.0%, below expectations. Additionally, both headline and core Personal Consumption Expenditure (PCE) inflation data – the Fed’s preferred gauge – fell to 2.6% in May, also undershooting expectations.
