It’s quite strange that 10 days back the key influential factor that pulled gold prices down was responsible for the rise in gold prices in the past 5 days. Yes rate hike!!!!.
The precious jobs reports brought mixed sentiments for gold traders as there wasn’t really anything in this number which was going to put the brakes or fasten an interest rate hike.
But what played positive for gold was the statement realized by Fed Chairman, Janet Yellen post the data released on Friday.
The surge in gold prices came after a Friday report on consumer prices showed that inflation in June came in flat, a sign that consumer prices had trouble sustaining its upward momentum. A weaker-than-expected reading for June’s retail sales, which fell 0.2%, also signal led weakness. Economists polled by Market Watch had forecast a 0.1% increase. Market participants said the lack of spending from U.S. shoppers made it difficult to envision inflation approaching the Fed’s 2% target.
Gold prices on Friday marked the highest finish of the month and their first weekly rise since early June, as data on retail sales and inflation stoked concerns that the pace of economic growth may not merit lifting U.S. interest rates again in 2017.
U.S. consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand that diminished prospects of a third interest rate increase from the Federal Reserve this year.
The U.S. data bolstered expectations that the U.S. Federal Reserve would likely to move slowly to continue raising interest rates in the absence of inflation signs. Some had been expecting another rate hike in 2017, however Fed Chair Janet Yellen's comments to the U.S. Congress this week was more dovish than originally anticipated.
Activity was muted ahead of a speech by US Federal Reserve Chair Janet Yellen later in the day which could give clues on the Fed's attitude towards inflation, and on when the US central bank will start reducing its $4.5-trillion balance sheet. That would likely push up bond yields, boosting the opportunity cost of holding bullion, and pushing gold lower.
But, in a testimony to the Congress, Federal Reserve Chairman Janet Yellen had signal led a gradual approach to future rate hikes, which pushed down the dollar and boosted the appeal of the precious metal.
The disappointing U.S. retail sales and inflation data has now seen the odds of another rate hike fall below 50% this year which has further boosted the appeal of low- and non interest-bearing assets on a relative basis, hence the market witnessed breakdown in [the U.S. dollar/Japanese yen] and breakout in gold.
The latest economic data may be viewed as providing insufficient support for the Fed to lift interest rates at least once more in 2017 and shrink its $4.5 trillion balance sheet—an act that can also serve to lift rates and tighten economic conditions.
The next big thing for traders is the upcoming ECB monetary policy meeting to be held on July 20 in Frankfurt and that certainly has an ability to bring another episode of taper tantrum.
