The price of gold has declined, losing more than 1% over the past few days to start trading on Thursday at $2011.97 per ounce.
This comes after strong economic data from the United States led to an increase in U.S. yields, while markets shifted towards reducing expectations of interest rate cuts by the Federal Reserve.
Losses in XAU/USD continued amid the rise in U.S. yields, with the robust U.S. retail sales report being the main reason for the decline in gold. The U.S. Department of Commerce revealed that sales in December exceeded expectations by 0.4% and jumped by 0.6%. These data strengthened the dollar to its highest level in five weeks at 103.69 points.
I believe the statements made by the Federal Reserve Governor on Tuesday, stating that there is “no reason to move quickly or cut interest rates quickly,” indicate a more cautious approach by the Fed to monetary policy adjustments. Despite this caution, the Fed is ready to begin interest rate cuts if there is a clear and sustained decline in inflation rates.
Today’s U.S. calendar will include more speakers from the Federal Reserve, along with unemployment claims data and the release of the University of Michigan Consumer Sentiment survey.
Therefore, I expect that the price of gold (XAU/USD) will face more pressure, especially after strong retail sales data for December, which increased significantly by 0.6% compared to the expected 0.4% and the previous reading of 0.3%.
Retail sales excluding automobiles also rose by 0.4% compared to expectations and the previous reading of 0.2%. I believe this has significantly reduced the chances of a Fed interest rate cut in March, amid a lack of confidence in inflation returning to the 2% target in a timely and sustainable manner.
From here, I argue that the final stage of price pressures and high data figures poses a significant challenge for Federal Reserve officials due to stable labor market conditions and good consumer spending momentum. This may make a quick interest rate cut a cause for continued inflationary pressures and a failure to achieve price stability.
Therefore, most likely, the performance of the U.S. dollar, Treasury yields, and gold will be guided by industrial production data for December and interest rate expectations from Federal Reserve speakers in the short and long term.