Spot gold concluded the week with a decline of approximately 1.40% at $1913.88, affected by higher yields and a stronger dollar. Concerns about potential inflation resurgence in the US amid a robust economy contributed to this trend.
In the week ending August 11, gold’s peak touched $1946.81, while its lowest point reached $1911.73.
The eagerly awaited US July CPI inflation report unveiled that Core CPI posted its smallest consecutive increase in two years, with a 0.20% month-on-month (m-o-m) rise for the second month. Similarly, headline CPI inflation also saw a 0.20% m-o-m increase.
Annual headline CPI inflation rose to 3.20% year-on-year (y-o-y), slightly lower than the forecasted 3.30%, while core CPI inflation stood at 4.70% y-o-y, matching predictions and slightly lower than June’s 4.80%.
July’s inflation dipped due to a 1.30% m-o-m fall in used car prices, 8.1% decrease in airfares, and 0.20% drop in medical care costs. Supercore services data, closely monitored by the Federal Reserve, fell 0.20% m-o-m but escalated from June’s 4% to 4.10% y-o-y, largely due to base effects from July 2022’s 5.10% reading.
Anticipated declines in housing components and rent are expected in the coming months. Although Friday’s US inflation data showed mixed results, with PPI data exceeding forecasts and University of Michigan consumer inflation expectations falling below predictions, it eased concerns of a potential Fed rate hike in September (current probability at 11.50%).
Initially rallying due to unfavorable jobless claims and inflation data, US treasuries eventually decreased as high crude oil prices indicated a possible rise in headline inflation in August, while core inflation may remain less affected. Additionally, the Fed’s Mary Daly mentioned that more work remains for the Fed.
Positive developments for gold in the week ending August 11 included an increase in total known gold ETF holdings on August 10 after thirteen consecutive days of outflows. China continued its gold buying spree in July, with the central bank’s gold holdings growing by around 23 tons to 2136 tons.
The official sector is expected to sustain gold purchases this year, though at a slower rate compared to last year. In contrast, US credit card debt contracted for the first time since April 2021 due to high-interest rates, leading to reduced credit card spending. Moody’s downgraded ten small and mid-sized US banks, while China’s economic challenges positively impacted gold.
US weekly jobless claims surged by 28k to 248k. China’s former largest developer, Country Garden Holdings Co., faced operational scrutiny and a liquidity crunch, with its bondholders yet to receive coupon payments. Troubles at the company underscore China’s economic woes, as its real estate sector constitutes nearly 25% of the nation’s GDP.
China’s new Yuan loan growth hit its lowest level since July 2009, with July’s new loans at 345.90 billion Yuan, falling far short of the forecasted 780 billion Yuan.
Gold faced negative implications as Turkey planned to limit unprocessed gold imports to counterbalance the negative effect of such imports on its current account balance. Unprocessed gold imports rose by 180% to $19.4 billion in the first seven months of the year, compared to the same period in the previous year.
Yields, particularly long-term yields, displayed volatility. The two-year US yields closed the week with a 3% increase at 4.89%, while the ten-year yields at 4.158% marked a 2.70% increase for the week.
The US Dollar Index recorded a 0.80% weekly gain, finishing the week at 102.85. Strong resistance faced the US Dollar Index around the 103.50 mark.
Upcoming, investors will closely watch US July retail sales (advance), NAHB housing market index, housing starts, industrial production, and Philadelphia Fed business outlook data. The FOMC minutes from the July 26 meeting will also be a focus. In Europe, Germany’s and Euro-zone’s ZEW Survey, Euro-zone’s 2Q P GDP, and Euro-zone’s CPI inflation will entertain traders.
China’s retail sales, industrial production, home prices, and PBoC’s monetary policy decisions are also due next week.
Gold’s situation remains influenced by both positive factors and rising yields that support the US Dollar. Continued yield and Dollar increases could test gold’s crucial support at $1890, while resistance lies at $1930/$1950.
Gold is projected to largely trade in the $1890-$1950 range, with China’s economic challenges potentially impacting buying patterns.
