- Gold prices remained close to a three-week low on Thursday.
- US producer prices surged by 0.7% in August, the highest increase over a year.
- US retail sales saw a 0.6% increase, surpassing the anticipated 0.2% rise in August.
On Thursday, gold prices remained close to a three-week low due to concerns about higher-than-expected US economic data. This raised worries that US interest rates may remain elevated for longer, strengthening the dollar and bond yields.
David Meger, director of metals trading at High Ridge Futures, commented, “We observed some inflationary data exceeding expectations, leading to a resurgence in yields and continued pressure on the spot gold market.”
US retail sales, producer prices (Source: US Commerce Department, Bureau of Labor Statistics)
Data revealed that US producer prices surged by 0.7% in August, the highest gain over a year. This development follows the notable rise in US consumer prices in August, marking the most substantial increase in 14 months. Consequently, expectations persist for additional rate hikes by the Federal Reserve, even after an expected pause in the upcoming week.
In August, US retail sales saw a 0.6% increase, surpassing the anticipated 0.2% rise. Elevated gasoline prices drove this uptick. Moreover, weekly initial jobless claims climbed to 220,000, although they remained below the forecasted 225,000.
Yeap Jun Rong, a market strategist at IG, commented, “The persistent expectation of the Fed maintaining high interest rates for an extended period has been exerting downward pressure on gold prices, which do not yield returns.”
He further noted, “Considering the ongoing robust economic conditions in the United States, there appears to be no immediate justification for implementing interest rate reductions. The anticipated timeline for such rate cuts continues to be postponed, now extending into the middle of the next year.”
Consequently, the US dollar index surged by 0.6%, reaching a six-month high, diminishing gold’s attractiveness to foreign investors. Simultaneously, the yield on the 10-year benchmark note also inched higher.
Despite the market’s anticipation that the Fed will maintain unchanged rates in their upcoming policy meeting next week, there is a 39% probability of a rate hike in November, according to the CME’s FedWatch Tool. Elevated interest rates diminish the appeal of bullion, which does not offer interest.
Earlier in the day, the European Central Bank elevated its key interest rate to a record high of 4% but indicated that this would likely be its final move.