Gold price recovered some ground on Tuesday after falling to its lowest level in almost a month on Monday. The precious metal was supported by strong US retail sales data, which showed that consumer spending remained resilient despite the Delta variant of the coronavirus and supply chain disruptions. Gold also benefited from a weaker US dollar and lower Treasury yields, which made the non-yielding metal more attractive.
US retail sales beat expectations in July
The US Census Bureau reported that retail sales rose by 0.7% in July, beating the market expectation of a 0.4% decline. This was the fourth consecutive month of growth in consumer spending, which accounts for about 70% of the US economy. The retail sales control group, which excludes volatile items such as food, gas, and autos, also increased by 1%, doubling the previous reading.
The strong retail sales data suggested that the US economic recovery remained on track, despite the surge in Covid-19 cases and inflation pressures. The data also boosted the confidence of investors, who had been worried about the impact of the Delta variant on global growth. The upbeat mood was reflected in Wall Street, where the major indices closed higher on Tuesday.
Gold price finds support near $1,900 level
Gold price bounced back from its multi-week low of $1,896.33 per ounce on Tuesday and settled at $1,906.40 per ounce, up 0.52% on the day. The metal found support near the psychological level of $1,900, which also coincided with the 200-day simple moving average (SMA). Gold price had been under pressure for the past three weeks due to a stronger US dollar and higher Treasury yields, which reduced the appeal of gold as a safe-haven and a hedge against inflation.
However, on Tuesday, the greenback weakened against its major rivals, as investors adjusted their expectations for the Federal Reserve’s tapering timeline. The US dollar index (DXY), which measures the strength of the dollar against a basket of six currencies, fell by 0.25% to 92.66. The DXY had reached a nine-month high of 93.73 last week, as some Fed officials signaled that they were ready to start scaling back their bond purchases as soon as this year.
Meanwhile, Treasury yields also retreated from their recent highs, as bond prices rose amid lower inflation expectations and some demand for safe assets. The yield on the benchmark 10-year Treasury note dropped by 4 basis points to 1.26%, after hitting a six-week high of 1.38% on Monday. Lower yields tend to benefit gold price, as they reduce the opportunity cost of holding the metal.
Gold price outlook: XAU/USD faces resistance at $1,925
Gold price has been trading in a narrow range between $1,880 and $1,925 for most of August, as investors await more clarity from the Fed on its monetary policy stance. The central bank will release the minutes of its July meeting on Wednesday, which could offer some hints on when and how it plans to taper its asset purchases. The Fed has been buying $120 billion worth of bonds per month since March 2020 to support the economy during the pandemic.
The minutes could also reveal how concerned the Fed is about the Delta variant and its potential impact on growth and inflation. The Fed has maintained that inflation is transitory and that it will tolerate higher prices until it achieves its dual mandate of maximum employment and stable prices. However, some market participants are skeptical that inflation will ease soon, as supply bottlenecks and labor shortages persist.
Gold price could face some resistance at $1,925, which is the upper end of its recent range and also near the 100-day SMA. A break above this level could open the door for a test of $1,950, which is a key Fibonacci retracement level and a previous support zone. On the downside, gold price could find support at $1,900, which is a psychological level and also near the 200-day SMA. A break below this level could trigger a slide towards $1,880, which is another Fibonacci retracement level and a previous resistance zone.
