Gold price climbs on soft US Retail Sales, igniting rate cut hopes

• Gold gains as softer-than-expected US Retail Sales boost rate cut expectations.
• Fed officials' comments reveal mixed views on the timing of potential rate cuts.
• 10-year Treasury yield drops six basis points to 4.219%, reflecting market speculation on future rate cuts.

Gold prices rose on Tuesday after economic data from the United States (US) hinted that consumer spending is constraining due to a softer-than-estimated Retail Sales report. This fueled speculation that the Federal Reserve (Fed) could begin its easing cycle this year. The XAU/USD trades at $2,327, up 0.51%.

The US Department of Commerce revealed that May’s Retail Sales improved compared to April’s data, which was downwardly revised but missed the mark. That data reignited investors' rate cut hopes as the Fed signaled in the last meeting that current monetary policy is appropriate.

Other data showed that Industrial Production improved in May, followed by a downward revision in April.

Aside from economic data, Fed officials have crossed the newswires. New York Fed President John Williams said that interest rates would decrease gradually if the disinflation process continued to evolve toward the Fed’s 2% annual core inflation goal. Despite dodging a question about a rate cut in September, he added, “I think that things are moving in the right direction.”

Richmond Fed President Thomas Barkin was cautious, saying he needs to see more data before easing. Later, Boston Fed President Susan Collins said she isn’t carried away about just one good reading on inflation and added that it’s not time to cut rates.

The newly named St. Louis Fed President, Alberto Musalem, stated that he needs to see an evolution in the disinflation process before voting to cut rates. He added that if inflation halts, he favors a rate hike, though it’s not his base case scenario.

Even though most policymakers struck a neutral stance, US Treasury yields reflect investors beginning to price in rate cuts. The 10-year Treasury note yield is down six basis points at 4.219%.

Data from the Chicago Board of Trade (CBOT) shows traders expect 36 bps of easing during the year via December’s 2024 fed funds rate contract.

Daily digest market movers: Gold price jumps as US yields drop

• US Dollar Index (DXY) decreased by 0.05% to 105.27, putting a lid on Gold prices.
• US Retail Sales for May increased by 0.1% MoM, improving from April's 0.2% decline but falling short of the 0.2% estimate. On an annual basis, sales decreased from 2.7% to 2.3%.
• US Industrial Production in May surpassed expectations of a 0.3% increase, rising by 0.9% MoM.
• Last week's CPI report raised the odds of a Fed rate cut in September from 57% to 62%, according to the CME FedWatch Tool.
• Despite the US CPI report showing that the disinflation process continues, Fed Chair Jerome Powell commented that they remain “less confident” about the progress on inflation.

Technical analysis: Gold price remains bearishly biased despite rising

Gold price is neutral to downwardly biased as the bearish Head-and-Shoulders chart pattern remains in play. Although the yellow metal achieved a leg up in the near term, momentum favors sellers, which can be seen by the Relative Strength Index (RSI).

If XAU/USD drops below $2,300, the next support would be the May 3 low of $2,277, followed by the March 21 high of $2,222. Further losses lie beneath as sellers would eye the Head-and-Shoulders chart pattern objective from $2,170 to $2,160.

Conversely, if Gold extends its gains past $2,350, key resistance levels emerge like the June 7 cycle high of $2,387, ahead of challenging the $2,400 figure.