Gold extended its two-week advance on Monday, trading near $4,400 an ounce, after weaker-than-expected US retail sales data weighed on the dollar and eased fears of an imminent interest rate hike. The metal, which ended the previous week almost 1% higher, has been buoyed by a combination of softer economic indicators, renewed investor appetite, and central bank buying, particularly from China. A gauge of the US dollar fell 0.2% on the day, making bullion priced in the currency more affordable for holders of other currencies.
What is driving gold higher?
Fresh US data released last week showed declines in both consumer sentiment and retail sales, suggesting the world's largest economy may be cooling more quickly than anticipated. That has helped ease market expectations that the Federal Reserve will raise interest rates in the near term, a development that typically weighs on non-yielding assets such as gold. Lower interest rates reduce the opportunity cost of holding bullion compared with yield-bearing investments.
Gold has also found support from technical factors. Last week the metal climbed above its 100-day moving average for the first time since April and continues to hover near that level. The recovery above the key $4,000-an-ounce threshold earlier this month has been reinforced by a pickup in investment demand and increased purchases by central banks, notably China.
Uncertainty over energy supply lingers
Despite the bullish mood, market participants remain wary of ongoing volatility in global energy markets. More ships came under attack in the Strait of Hormuz late last week, while the United States said it was preparing to impose new measures aimed at crippling Iran's economy. Those developments have kept the risk of monetary tightening alive, as any sustained rise in energy prices could feed into higher inflation and force central banks to act.
Some vessels are exiting the Strait of Hormuz with their satellite transponders turned off, a practice that has helped moderate global energy prices by masking supply disruptions. Separately, Iran and Oman appear to be edging closer to a deal on how the critical waterway should be managed, though the US is not party to those talks.
Market outlook and key levels
Justin Lin, an analyst at Global X ETFs, noted that gold's recent bounce has been