- The dollar dropped after the European Central Bank raised interest rates.
- US jobless claims were higher than expected.
- There was an unexpected rise in US retail sales in May.
Gold prices increased from a three-month low due to a decline in the dollar and bond yields caused by US economic data. The dollar dropped after the European Central Bank raised interest rates following the Federal Reserve’s pause in rate hikes.
The European Central Bank lifted interest rates to a 3.5% high, indicating the possibility of more hikes in the future. This divergence from the US saw the dollar plunge, benefiting the dollar-denominated yellow metal.
US jobless claims (Source: Refinitiv Datastream)
The Labor Department released a report stating there was no change in initial claims for state unemployment benefits. The number remained at a seasonally adjusted 262,000 for the week ending on June 10, the same level as in October 2021. Still, it was lower than the 249,000 claims economists had predicted for the most recent week.
Conrad DeQuadros, senior economic advisor at Brean Capital in New York, commented that if the increase in unemployment claims over the past two weeks continues, it could indicate a rise in layoffs and a slowdown in job growth. However, at this point, it falls short of signaling a yellow alert for job expansion.
Although US jobless claims were higher than expected, there was an unexpected rise in retail sales in May. Consumers increased their purchases of motor vehicles and building materials, which could prevent a recession in the near future.
Gold had declined on Wednesday when the Fed hinted at two more rate increases later this year. However, on Thursday afternoon, it experienced a significant rally. The higher jobless claims led to speculation that the Fed would not proceed with additional rate hikes.
Shaun Osborne, chief FX strategist at Scotiabank in Toronto, stated that the US dollar might face a more challenging environment, particularly with the global monetary policy cycle nearing its conclusion. The peak of the rate cycle would hurt the dollar and increase the appetite for gold.
Elsewhere, US Treasury yields fell after the poor economic data from the US. The benchmark 10-year notes decreased by eight basis points to 3.718% compared to the previous day’s 3.798%. The 30-year bond dropped by 3.9 basis points, yielding 3.8421%, while the 2-year note decreased by 6.5, yielding 4.6418%. Lower yields in the US made gold more attractive.