Gold rose modestly — consolidating gains above $5,000 an ounce — after weak retail sales in the US supported the case for the Federal Reserve to cut interest rates.
Bullion climbed as much as 0.9% after closing lower on Tuesday. Consumer spending unexpectedly stalled in December, setting the scene for a delayed and highly anticipated January jobs report on Wednesday. US 10-year bond yields dropped to the lowest in nearly a month, while the dollar fell for a fourth day, making gold cheaper for many buyers.
Gold Consolidating Around $5,000
Photo Credit: (Photo: Bloomberg)
The fall in yields helped lift gold prices, said Manav Modi, an analyst at Mumbai-based Motilal Oswal Financial Services Ltd.
Bullion doesn't pay interest and typically rises when yields elsewhere become less attractive.
The precious metal surged to a record high above $5,595 an ounce in late January on geopolitical upheaval, attacks on the Fed's independence and a shift away from traditional assets like currencies and sovereign bonds. But a wave of speculative buying saw the rally get overheated and gold plunged about 13% in two sessions.
It's since clawed back about half of those losses, and has been trading around $5,000 an ounce this week. Many banks see the rally resuming as the reasons that underpinned its gains are still intact. BNP Paribas SA is backing it to get to $6,000 by the end of the year, while Deutsche Bank AG and Goldman Sachs Group Inc. also have bullish forecasts.
“Much of the speculative positioning appears to have been flushed out, reducing the risk of extreme swings in the near term,” said Ahmad Assiri, an analyst at Pepperstone Group Ltd. Subdued volatility may well be “the foundation for the next leg higher,” he said.
Any further reduction in US borrowing costs would be positive for gold, and President Donald Trump's selection for Fed Chair, Kevin Warsh, has advocated for more rates cuts. However, Federal Reserve Bank of Cleveland President Beth Hammack said Tuesday that interest rates could be on an extended hold, while officials evaluate incoming data.
Spot gold rose 0.5% to $5,052.17 an ounce as of 3:50 p.m. in Singapore. Silver climbed 3.4% to $83.5555 an ounce, while platinum and palladium both added more than 2%. The Bloomberg Dollar Spot Index, a gauge of the US currency, fell 0.3%, and is down 1.3% in four sessions.
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