Gold News

Weak US Retail Sales See Gold Price Recover $2000 After Inflation Drop

The PRICE of GOLD rallied back through $2000 per Troy ounce in London on Thursday, recovering half of this week's earlier 1.9% drop – made on stronger US inflation data – after retail sales for January missed analyst forecasts.

Sinking as low as $1985 following Tuesday's US inflation data surprise, the gold price in Dollars rebounded today to $2008 after the Census Bureau said spending on goods and food services, even before adjusting for inflation, fell 0.8% last month, extending the 0.4% monthly drop in December rather than rallying 0.1% as expected.
Gold prices then fell back however, testing the $2000 level once more after snapping it for the first time in 2 months – the longest stretch yet above that price.
Today's retail sales disappointment saw market forecasts for Federal Reserve interest rates still put only a 1-in-10 chance on the US central bank cutting the cost of borrowing Dollars at its next meeting, in March.
But the consensus outlook for end-2024 moved to predict US interest rates at 4.38% per annum in December, according to the CME derivatives exchange's FedWatch tool, down 0.12 points from Tuesday's 11-week high.
Chart of gold price (right, inverted) vs. forecasts for end-2024 Fed interest rates. Source: BullionVault
That would equate to 4 rate cuts between now and Christmas, one more than the Fed itself projected in its latest 'dot plot' forecasts but still more hawkish than the 6 cuts predicted by the CME futures market at New Year.
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"Let's not get amped up on one month of CPI that was higher than it was expected to be," said Chicago Fed President Austan Goolsbee yesterday.
In fact, he added, and judging the annualized rate of consumer price inflation on 3-month and 6-month data, "It's totally clear that inflation is coming down.
"We've had six to seven months in a row [where] the flow rate of inflation has been approaching the [Fed's official 2.0% annual] target."
Like retail sales, US industrial output also fell last month, new data said Thursday, down 0.1% instead of growing 0.3% from December as analysts forecast.
Yet the more 'industrial' precious metals extended yesterday's rebound from their inflation-data plunges, with silver rising back above $23 – more than $1 per ounce above Wednesday morning's 4-week low – as platinum and palladium prices hit 1- and 2-week highs respectively.
Longer-term bond prices rebounded with gold, driving down the yield offered by 10-year Treasury debt to 4.20% per annum, down from the 12-week high of 4.31% hit on Tuesday's inflation data.
"The FOMC's response to tightening [rates] after the Covid pandemic was not textbook," says an academic paper co-authored by Fed Governor Chris Waller – himself a voting policymaker on the Federal Open Markets Committee – because "it involved much faster tightening of policy than had been seen in more than 30 years."
Even so, "policymakers' actions have coincided with stable financial markets, a strong labor market, and inflation moving down from its peak."
But "we [still] need to see continued good data before we can begin the process of reducing the federal funds rate," countered Fed vice-chair for banking supervision Michael Barr in separate remarks. 
With gold prices in US Dollar terms hitting the lowest yesterday since mid-December, the giant New York-listed SPDR Gold Trust (NYSEArca: GLD) – the world's largest gold-backed ETF product – saw shareholders liquidate another 0.2% of the fund, shrinking it to the smallest since August 2019.
The smaller iShares IAU gold ETF also shrank yet again, down 0.1% to the smallest since March 2020 and erasing the last of the 36.1% growth which then followed during the first 8 months of the global Covid pandemic.
Today the Euro and UK gold price in Pounds per ounce also rallied, edging up 0.6% and 1.0% respectively from late-Tuesday's 3-week lows at €1852 and £1579.
"Wage growth continues to be strong," said European Central Bank president Christine Lagarde to lawmakers in Brussels today, "[becoming] an increasingly important driver of inflation dynamics.
"[So while] the current disinflationary process is expected to continue," the head of the ECB went on, the highest ever interest rates in the Euro's 25-year history "[must be] maintained for a sufficiently long duration...[to] lead us sustainably to our 2% target" for inflation across the 20-nation single currency zone.
Eurozone GDP will grow only 0.8% in 2024, new forecasts from the European Union said Thursday, down from the prior 1.2% prediction.
The UK ended 2023 in recession, new figures said today. Yet the Bank of England sees a "somewhat stronger growth story" ahead, governor Andrew Bailey claimed earlier this week, telling lawmakers in London that the fact UK inflation – still the highest among major developed economies – did not accelerate in January "[is] obviously encouraging relative to where we could have been."


Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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