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The US dollar weighs on gold. Will US retail sales change course? -by Ecork

Fundamental Outlook for Gold: Bearish

  • Gold prices fell last week amid a broad market move away from risk
  • US retail sales data will top the economic calendar this week
  • The direction of XAU may depend on how the dollar reacts to that data

Gold prices fell further last week as traders weigh the chances of a recession amid increasingly hawkish sentiment from the Federal Reserve. This has boosted many inflation publications out of the US. The April Consumer Price Index (CPI) beat the wires at 8.3% on an annual basis, beating analysts’ expectations of 8.1% on an annual basis. The Producer Price Index (PPI) for the same period showed that factory gate prices were still very high at 11.0% y/y.

This set of inflation data helped push the US dollar higher against most of its major peers. A stronger dollar usually works against bullion prices. The euro dove, which leads a lot of power, likely due to Finland’s announcement that it intends to aggressively pursue NATO membership. That sparked a strong reaction from Russia, as the embattled country vowed revenge, reinforcing the risk-averse tone that has been covering the eurozone.

Traders will be watching for several notable data prints this coming week that may influence XAU prices. April US retail sales may have the biggest impact on the broader market sentiment. Analysts see retail sales growth of 0.7% month over month for April, according to a Bloomberg survey. A stronger-than-expected figure may ease some concerns about a looming contraction in economic activity. This is likely to help calm the US dollar and possibly allow gold to rise by removing some risk aversion in the markets, where the dollar has been largely acting as a haven for traders.

Weekly chart of gold against the US dollar

The graph was created using TradingView

— By Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or Tweet embed on Twitter

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