- Data on Tuesday revealed that retail sales in the US jumped by 1.7%.
- US rates could remain high due to the recent rally in oil prices.
- Trump said he expected a great deal from Iran.
Gold prices collapsed on Tuesday, weighed by a stronger dollar after upbeat US sales data. At the same time, investors preferred the safe-haven dollar amid uncertainty regarding a deal between the US and Iran to end the war.
US sales (Source: US Department of Commerce)
Data on Tuesday revealed that retail sales in the US jumped by 1.7%, beating the forecast of 1.4%. At the same time, core retail sales increased by 1.9%, compared to the estimate of a 1.4% increase. The report pointed to solid consumer spending. This is consistent with an overheating economy. As a result, Fed rate cut expectations eased, strengthening the dollar. A strong dollar makes gold pricier for foreign buyers.
Furthermore, a strong economy means interest rates will remain high for longer. The Fed could even be forced to consider rate hikes if the trend continues. The non-yielding gold suffers when rates are high, as traders prefer yielding assets.
Moreover, rates could remain high due to the recent rally in oil prices. The war in Iran has disrupted the supply of oil, tightening the market. As energy prices increase, global inflation rises. As a result, central banks have to raise or keep interest rates high in order to cool their economies.
Elsewhere, war uncertainty has put downward pressure on bullion. On the other hand, the dollar strengthened on Tuesday amid an increase in demand for safe-haven assets. Since last week, market participants have been grappling with shifting sentiments regarding the future of the Iran war.
Initially, there was optimism after Trump hinted at more talks between the US and Iran in Pakistan. At the same time, Iran announced on Friday that the Strait of Hormuz was completely open. However, the mood changed quickly over the weekend after the US seized an Iranian cargo ship. Iran vowed to retaliate and closed the Strait on Monday.
By Tuesday, the mood had changed again after Trump said he expected a great deal with Iran. Meanwhile, Iranian officials were ready for talks in Pakistan. The back and forth has left many uncertain about the future. The two-week ceasefire deal between the two nations is expiring on Wednesday. It remains to be seen what will happen afterwards.