Gold prices faced a setback, experiencing a decline of more than 1% in consecutive trading sessions on Wednesday. The retreat came in response to robust economic data from the United States, causing US yields to rise and prompting traders to scale back expectations of a Federal Reserve rate cut.
The primary catalyst for the decline in gold prices was a strong US Retail Sales report, surpassing expectations by jumping 0.6% in December, exceeding the forecasted 0.4%. This positive economic data propelled the US Dollar Index (DXY) to a five-week high of 103.69. Simultaneously, US Treasury bond yields continued their upward trajectory.
The optimistic economic outlook led to a significant shift in expectations for a Federal Reserve rate cut, dropping from 63% to 52% following the release of the retail sales data. This adjustment was also influenced by recent comments from Fed Governor Waller, who advocated for a cautious approach to interest rate adjustments, emphasizing that there was “no reason to move as quickly or cut [interest rates] as rapidly as in the past.”
While expressing a willingness to support rate cuts in the event of a definitive decrease in inflation, Waller’s comments contributed to the recalibration of market expectations. Additionally, the expansion of Industrial Production (IP) in the US by 0.1%, exceeding both forecasts and the previous month’s figures, added to the overall positive sentiment in the economy.
Analysts cited by Reuters noted, “Markets were betting that the Fed was starting to cut rates already at the end of the first quarter of this year, and now they’re recalibrating a bit after hawkish comments from some members of the Federal Reserve.”
Looking ahead, the US economic calendar is expected to feature further speeches from Fed officials, along with Thursday’s unemployment claims data and the release of the University of Michigan’s (UoM) Consumer Sentiment poll. The ongoing reassessment of rate cut expectations and economic indicators will likely continue to influence gold prices in the coming sessions.
