Gold (XAU/USD) is trading flat in the $2,320s range on Wednesday as a result of quiet markets and low holiday volume. This lack of risk sentiment and low volatility is capping movement in the safe-haven asset. The US Dollar (USD), to which Gold is negatively correlated, is also trading unchanged, while US bond markets are closed for the Juneteenth day holiday, leading to the benchmark US 10-year Treasury bond yield staying steady at 4.2270%.
Gold saw an increase on Tuesday following weak US Retail Sales data. The lower-than-expected Retail Sales in May led to a downward revision in the outlook for US interest rates, as it suggests lower consumer spending and a potential fall in inflation. This could prompt the Federal Reserve to consider cutting interest rates, with markets now giving a 60% probability of a rate cut at the September meeting. Despite this, recent Fed commentary has been more focused on waiting for sustained decreases in inflation before making any rate cuts, which could be negative for Gold.
A technical analysis of Gold shows the formation of a bearish Head-and-Shoulders pattern on the daily chart. These patterns typically signal a trend reversal at market tops. The pattern is seen to have completed a left and right shoulder with a head, with the neckline at the $2,279 support level. A break below this neckline could activate downside targets at $2,171 and $2,106. However, a break above $2,345 could signal a continuation higher towards $2,450.
The Retail Sales data, released monthly by the US Census Bureau, measures the total receipts of retail and food stores in the US and reflects the rate of changes in sales. The data is adjusted for seasonal and holiday variations, and it is considered an important indicator of consumer spending and the US economy. Higher Retail Sales are seen as bullish for the USD, while lower sales are considered bearish. The most recent data showed a 0.1% increase, slightly lower than the consensus of 0.2%.
In conclusion, despite Gold trading flat on low holiday volumes, the impact of weak US Retail Sales data and the ongoing discussions around potential interest rate cuts by the Federal Reserve may lead to increased volatility in the coming weeks. The technical analysis signals a possible trend reversal for Gold, while the Retail Sales data remains a key economic indicator influencing market sentiment. Investors will continue to monitor these factors to make informed decisions in the precious metals market.
