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Gold Recovery Runs Out of Fuel Ahead of US Retail Sales. What Now for XAU/USD?

Gold Recovery Runs Out of Fuel Ahead of US Retail Sales. What Now for XAU/USD?

Diego Colman, Contributing Strategist
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  • Gold loses momentum after last week’s explosive rally, with prices struggling to stay afloat over the past two trading sessions
  • Attention now shifts to the U.S. retail sales report on Tuesday for insight into household consumption
  • Strength in consumer spending could be negative for gold in that it could increase the likelihood of additional monetary tightening. Meanwhile, weak data could have the opposite effect on XAU/USD
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Gold (XAU/USD) rebounded significantly and was up around 1.55% last week after the June U.S. inflation and PPI data surprised to the downside, but its recovery momentum has started to wane, with prices subdued and struggling to stay afloat in the last two trading sessions.

Although weakening price pressures in the U.S. have reduced the likelihood of additional tightening beyond the quarter-point hike fully discounted for the July FOMC meeting, many traders continue to believe that the U.S. central bank will need to do more to restore price stability.

With interest rate expectations in a state of flux, it is important to keep an eye on incoming data for insight into the monetary policy roadmap. Having said that, there is one key release worth following on Tuesday morning: June U.S. retail sales.

According to consensus estimates, retail sales grew 0.5% last month, following a 0.3% advance in May. Household consumption is the main driver of U.S. GDP, so the strength or weakness of the report, which can be a proxy for spending, will give important clues about growth.

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Source: DailyFX Economic Calendar

If the U.S. consumer remains sturdy, economic activity is likely to be stronger than expected, a situation that may provide cover for the Fed to extend its normalization campaign. This could mean another 25 bp hike in September and higher rates for longer, a key risk for gold prices.

On the other hand, if consumer spending slows materially, gold may have more room and fewer obstacles to resume its recovery, as this scenario could lead to a less hawkish monetary policy outlook in the United States.

Gold Bearish
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Change in Longs Shorts OI
Daily -1% -5% -3%
Weekly -1% -10% -4%
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From a technical outlook, if gold manages to resume its rebound, initial resistance appears at $1,975. Upside clearance of this ceiling could open the door for a move to the psychological $2,000 level. In contrast, if XAU/USD extends its recent pullback, the first support to consider rests at $1,895, the 38.2% Fibonacci retracement of the Sept 2022/May 2022 rally. On further weakness, the focus shifts to the 200-day simple moving average near $1,872.


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Gold Price Technical Chart Prepared Using TradingView

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.