Gold prices fluctuated on Thursday as the dollar and Treasury yields increased due to stronger-than-expected U.S. economic data, impacting the potential size of interest rate cuts by the Federal Reserve. Despite an initial increase, spot gold was up only 0.3% at $2,454.50 per ounce, while U.S. gold futures rose 0.5% to $2,492.10. Chris Gaffney, president of world markets at EverBank, noted that the positive retail sales data indicated a strong economy, leading to a decline in gold’s allure as the dollar regained strength.
The Commerce Department’s Census Bureau reported a 1.0% increase in U.S. retail sales last month after a downwardly revised 0.2% drop in June. Additionally, a Labor Department report revealed that the number of Americans filing for unemployment benefits was lower than expected at 227,000 for the week ended Aug. 10. The resulting impact was a rise of 0.4% in the dollar against other currencies, making gold more expensive, and a jump in benchmark 10-year Treasury yields following the release of the data.
In light of the strong economic data, two Fed officials expressed support for a potential interest rate cut at the central bank’s next policy meeting, contrary to their previous skepticism about reducing borrowing costs too soon. According to the CME FedWatch Tool, markets are currently pricing in a 100% chance of a rate cut in September. However, the robust data has reduced the likelihood of a 50 basis point cut. A low interest rate environment typically boosts the appeal of non-yielding assets like gold, making it a more attractive investment option for investors.
Jeffrey Christian, managing partner of CPM Group, highlighted that ongoing political uncertainties are likely to support gold prices, but could also contribute to increased price volatility in the market. In addition to gold, other metals also experienced price fluctuations on Thursday. Spot silver gained 2.6% to reach $28.29 per ounce, platinum surged 4.4% to $959.30 per ounce, and palladium rose 0.7% to $942.25 per ounce. The overall market sentiment remains cautious amid the changing economic landscape and the ongoing geopolitical tensions that impact the precious metals sector.
