Gold rebounded towards $4,372 per troy ounce on Friday after sliding to a weekly low of $4,311 earlier in the session. The recovery followed a series of disappointing economic releases from the United States, which dampened expectations of another interest rate increase by the Federal Reserve in September. A weakening US dollar and falling short-term Treasury yields helped underpin bullion, though the metal remained below Thursday's two-month peak of $4,449.
Slowing US retail spending weakens the dollar
The primary catalyst for Friday's turnaround was a sharper-than-expected contraction in American consumer spending. US retail sales dropped by 0.6% month-on-month in July, falling well short of economists' forecasts for a 0.1% increase and reversing the 0.2% growth logged in June. Because consumer spending drives the bulk of US economic activity, the contraction raised fresh questions about underlying economic momentum.
This retail figures added to a string of cooler data points across the week. Both consumer and producer price indices indicated that inflation pressures are moderating. Concurrently, softer July nonfarm payroll figures, alongside downward revisions to the previous two months of employment data, suggested that hiring is losing pace. These developments pushed short-term US government bond yields lower and dragged the US Dollar Index below 100, providing immediate support to the live gold price.
Federal Reserve pause expectations strengthen
With economic data softening, financial markets have adjusted their monetary policy expectations. According to the CME FedWatch Tool, traders are pricing in approximately a 70% probability that the Federal Reserve will hold borrowing costs steady at its September meeting.
A pause in policy tightening reduces the opportunity cost of holding non-yielding bullion compared to cash or fixed-income assets. Analysts at MUFG noted that slower growth in private employment and wages, combined with limited evidence of energy costs feeding into core inflation despite regional tensions affecting the Strait of Hormuz, gives central bank policymakers greater scope to keep interest rates on hold.
Headwinds and technical levels to watch
Despite the rebound, several factors continue to cap bullion's upside. Headline inflation remains above the Federal Reserve's 2% target, and elevated oil prices mean energy-driven price pressures have not fully cleared. Higher longer-dated Treasury yields also indicate that investors are not ruling out further tightening later in the cycle.
From a technical standpoint, gold faces immediate resistance between its 100-day simple moving average at $4,386 and the upper Bollinger band at $4,455. A break above this range could signal renewed upward momentum. On the downside, the 20-day simple moving average at $4,173 serves as initial support, followed by the psychological $4,000 threshold and the lower Bollinger band near $3,891.
Key takeaways
- Gold rebounded from a weekly low of $4,311 to trade near $4,372 per troy ounce on Friday.
- US retail sales declined 0.6% in July, missing expectations and following cooler inflation and labour data.
- Markets are pricing in a 70% chance that the Federal Reserve will leave interest rates unchanged in September.
- The US Dollar Index slipped below 100, lowering the cost of gold for buyers using other currencies.
Common questions
Why does weak economic data push the gold price higher?
Weak economic indicators often lead central banks to pause or reverse interest rate increases. Lower interest rates reduce the yield available on cash and government bonds, making non-yielding assets such as gold relatively more attractive to investors.
What is the relationship between the US dollar and gold?
Gold is predominantly priced in US dollars on international markets. When the dollar weakens against other currencies, gold becomes less expensive for overseas buyers, which tends to stimulate demand and support higher prices.
In summary, Friday's data-driven rebound demonstrates gold's sensitivity to US economic indicators and interest rate expectations. While softer retail sales and cooling inflation have eased immediate pressure on the metal, persistent price risks and elevated bond yields suggest market participants remain measured in their outlook.