Gold Prices Struggle as US Retail Sales, Consumer Confidence Data Approach

[MongiIG]

GOLD PRICE OUTLOOK:

• Gold prices unable to capitalize on US CPI even as the Dollar weakens
• Rising real yields undercut bullion’s alternative store-of-value appeal
• US retail sales, consumer confidence data to inform Fed policy outlook

Gold prices found some support as December’s much-anticipated US CPI data registered broadly in line with expectations, easing concerns about a possible upside surprise that might have pushed the Fed toward hawkish escalation. The rise was tellingly modest however, keeping bullion locked in a familiar contagion range.

One might have expected the yellow metal to find favor as the US Dollar retreated, which can burnish the appeal of the perennial anti-fiat alternative. That it was unable to do so probably speaks to its role as an alternative store of value, as reflected in its intimate relationship with real interest rates.

The as-expected CPI result kept priced-in inflation expectations anchored in familiar territory but nominal rates edged up on the day, thanks in part to a 10-year bond sale where yields surged to a pre-pandemic high above 1.7 percent. That the data did not dislodge 2022 Fed rate hike expectations helped as well.

Real rates are calculated by discounting nominal yields by expected inflation. They rose as headline Treasury yields came up while price growth bets idled, undermining the appeal of owning non-interest-bearing gold. That seemed to counteract upside pressure from the Greekback’s woes.

US RETAIL SALES, CONSUMER CONFIDENCE DATA IN FOCUS

The spotlight now turns to December’s US retail sales report as well as January’s University of Michigan consumer confidence survey. Receipts are seen falling 0.1 percent from November, marketing the first decline in five months, while the marquee sentiment gauge drifts lower.

Worries about rising inflation’s negative implications for household consumption – the overwhelmingly dominant driver of US economic growth – have been at the heart of the Fed’s hawkish pivot in recent months. If those concerns are bolstered by today’s news-flow, gold may be in for a challenging end to the trading week.

 

GOLD TECHNICAL ANALYSIS – WILL RANGE RESISTANCE CONTINUE TO HOLD?

Gold prices remain stuck below resistance in the 1834.14-49.64 area. Breaking its upper bound may expose the next upside barrier at 1877.15. Alternatively, a reversal below the January swing low at 1778.50 would break five-month rising trend support, targeting a challenge of 1750.78 thereafter.

Gold price chart created using TradingView

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Written by Ilya Spivak, Head Strategist, APAC for DailyFX. 14th Jan 2022.