Gold prices continued to fall and hit as low as $1,400 an ounce on Wednesday, pressured by stronger dollar due to better than expected US retail sales data released yesterday. Although strong data from the US recently signalled improving situation in US economy, this will likely have no impact on Fed’s stance to lower interest rates at the end of July. Fed Chair Jerome Powell said yesterday core inflation edged up in June however inflation pressure was still tame. In the meantime, it is stated that there is still long way to reach a trade deal even though the US and China resumed trade talks as US President Donald Trump reiterated he could impose additional tariffs on Chinese goods. According to data released in Europe today, Eurozone consumer inflation picked up in June however remained well below European Central Bank’s target.
Gold was pressured by stronger dollar following better than expected US retail sales data released on Tuesday and decreased as low as $1,400 an ounce on Wednesday.
As of 16:00 GMT+3, spot gold was trading at $1,406.43 an ounce while dollar index was at 97.36. US 10-year Treasury yield was down to 2.089.
OANDA analyst Stephen Innes said on Reuters that expectations rose that Fed would be less dovish and there would be only one rate cut this year due to stronger US data while adding gold would be pressured in the short run as expectations for a 50 basis point rate cut faded.
Even though data released in the US recently showed signs of recovery in the economy, this is not expected to have an impact on Fed’s stance to go for an accommodative monetary policy in July. Fed Chair Jerome Powell said yesterday inflation increased in June and they expected personal consumption expenditures price index to rise to 1.7% while stating inflation pressure remained tame. Powell also said there were no changes in the economic outlook since the last monetary policy meeting.
In the meantime, it is stated that there was a long way to a trade deal between the US and China although sides resumed negotiations as US President Donald Trump reiterated yesterday he could impose new tariffs on Chinese goods worth $325 billion. China Foreign Ministry spokesman Geng Shuang said “this would create a new obstacle for US and China trade negotiations” if the US imposed new tariffs while adding China was in favor of solving problems with the US through dialogue.
Data released in Europe showed today that Eurozone consumer inflation picked up in June however it was still well below European Central Bank’s 2% target. According to the data, Eurozone consumer inflation increased to 0.2% from 0.1% monthly in June and annual inflation rose to 1.3% from 1.2% while core consumer inflation picked up to 1.1% from 0.8%. ECB board member Benoit Coeure said on Wednesday that the central bank was ready to act appropriate if necessary to help increasing inflation to ECB’s target. ECB is expected to cut the rates by 10 basis point in its monetary policy meeting next week.