August 17, 2023 02:20:58 PM
Gold Price Remains on Tenterhooks as US Economic Remains Resilient
The risk profile remained bearish as Fitch warned about the downgrading of some of the big US lenders.
SEATTLE (Scrap Monster): Gold price (XAU/USD) flirts with the crucial support of $1,900 as investors await the Federal Open Market Committee (FOMC) minutes to attain guidance about inflation and the interest-rate peak. The precious metal continues to find offers from market participants as the US Dollar and Treasury yields strengthen due to the resilience of the US economy, which contrasts with China’s poor economic outlook.
Robust consumer spending momentum fueled by strong wage growth indicates resilience in the US economy, which could keep core inflation sticky and would force Federal Reserve (Fed) policymakers to keep interest rates high for a longer period. Fed policymakers are expected to keep the interest-rate policy unchanged in September as spending on big-ticket items softens due to higher rental costs.
- Gold price aims for sustainability above $1,900, aided by a directionless US Dollar ahead of the FOMC minutes, which will be released at 18:00 GMT.
- FOMC minutes of the September monetary policy meeting will provide interest rate guidance and the inflation outlook for the remainder of 2023.
- According to the CME Group FedWatch Tool, markets broadly expect interest rates to remain unchanged for the rest of the year.
- However, US economic resilience due to stronger consumer spending momentum and tight labor market conditions could force Federal Reserve policymakers to keep interest rates high for a longer period.
- On the contrary, Minneapolis Fed President Neel Kashkari said on Tuesday that while the US central bank has made some progress in its inflation fight, interest rates may still need to go higher to finish the job.
- The US Dollar Index manages to keep the auction around 103.00 amid further evidence of an economic slowdown in China and US strong consumer spending momentum.
- The Chinese economy is facing a turbulent environment amid a slowdown in overall demand and declining exports.
- The People’s Bank of China (PBoC) cut the one-year medium-term lending facility (MLF) rate by 15 basis points (bps) to 2.50% in order to keep liquidity in the banking system at reasonably ample levels.
- A dovish interest-rate decision from the PBoC came after new home prices in China fell in June for the first time this year.
- An economic slowdown of the Chinese economy has improved the appeal for the US Dollar.
- US retail sales, a proxy for consumer spending, expanded at a higher pace in July partly driven by strong wage growth. Retail Sales rose by 0.7%, more than the 0.4% expected and the 0.2% increase seen a month earlier. Retail Sales excluding automobiles rose by 1.0%, indicating robust demand for both durables and quick consumables.
- 10-year US Treasury yields remain around 4.20% as investors hope interest rates will remain high for longer amid an upbeat economic outlook.
- The risk profile remained bearish as Fitch warned about the downgrading of some of the big US lenders. After the downgrade of the US banking industry's "operating environment" to AA- from AA, the credit rating firm warned of downgrading multiple banks including J.P. Morgan.
- Apart from the FOMC minutes, investors will also focus on monthly Industrial Production data for July. Production is seen expanding by 0.3%, swinging from a 0.5% contraction in June.
- Monthly Building Permits edge up 0.1% while Housing rose 3.9% in July, outperformed expectations.