Gold futures saw a significant rally on Thursday, with the February contract settling at $2,746.30, after reaching an intraday high of $2,757.60. The surge brought prices close to the $2,760 level, the previous peak set on December 12. The rally was driven by disappointing retail sales data and a subsequent weakening of the U.S. dollar.
The precious metal’s performance on Thursday nearly matched the record set in December, when February gold traded to an intraday high of $2,759 and $2,761 on the previous day. However, the December peak proved unsustainable, and gold prices dropped $48.60 to settle at $2,705.20.
The December decline was triggered by a surprise inflation report. The Producer Price Index (PPI) for November showed a 0.4% monthly increase, double the forecasted 0.2%. This followed a 0.2% rise in October, pushing the annual headline PPI to 3%. The market reacted sharply to the data, initiating a significant correction that pushed February gold futures down to $2,598.10 by December 18. After a modest recovery of $10.40 on December 19, gold staged a strong comeback, gaining about $148 and settling at today’s price of $2,746.
The day’s gain of $24.30 (0.89%) was largely driven by weaker-than-expected retail sales data. According to the U.S. Commerce Department, December retail sales rose by 0.4%, falling short of the expected 0.5% increase and down from November’s revised 0.8%. This, combined with Wednesday’s lower core Consumer Price Index reading, strengthened expectations that the Federal Reserve may soon cut interest rates, putting pressure on the dollar and yields.
Christopher Louney, a commodities strategist at RBC Capital Markets, emphasized the importance of economic data in influencing gold prices. “Gold’s data dependency is clearly present in pricing, especially with this week’s inflation data and the related shift in swap traders back to pricing in a rate cut by July. While our price view remains unchanged, this is indicative of the bouts of strength (and weakness) that we expect in gold. This, on balance, should lead to gold holding and its resiliency enduring.”
Despite the market’s optimism, a rate cut at the upcoming Federal Open Market Committee (FOMC) meeting on January 29 seems unlikely, with only a 2.7% probability. Interest rate futures traders are now focusing on July, when they anticipate the Fed may begin cutting interest rates. At that time, there is a 25.2% chance that the Fed will maintain its current interest rate range of 4.25% to 4.50%.
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