(Kitco News) - The gold market is seeing some renewed volatility as it continues to hold its ground above $2,900 while weak consumption data highlights growing risks for the U.S. economy.
U.S. retail sales dropped sharply last month, falling 0.9% following December’s revised increase of 0.7%, the U.S. Commerce Department announced Friday.
The data was significantly weaker than expected as economists were forecasting a 0.2% decline.
In the last 12 months, retail sales increased 4.2%, the report said.
Core sales, which exclude vehicle sales, fell 0.4% last month and also missed expectations. Economists were looking for a 0.3% increase.
In more disappointing news,** the** report showed that the control group – excluding sales from auto dealers, building-materials retailers, gas stations, and office supply stores – which also feeds directly into U.S. GDP, dropped by 0.8%, missing expectations for an increase of 0.3%.
The gold market was already seeing some selling pressure ahead of the report, and profit-taking picked up momentum in the initial reaction. Spot gold last traded at $2,912.30 an ounce, down 0.53% on the day.
Economists have said that the retail sales numbers do not bode well for the economy in the first quarter.
“The polar vortex that hit the continent in the second half of the month probably helps to explain some of the weakness, including the 1.3% decline in the weather-sensitive building materials & garden equipment sector, although we doubt weather effects were the only factor at play given sales at food services & drinking places rose by 0.9%,” said economists at Capital Economics in a note. “Even assuming some bounce back in February, that would leave consumption growth on track to slow to around 2.5% annualised in the first quarter and suggests that overall GDP growth will be closer to 1.5%.”
The retail sales numbers cap off a disappointing week for U.S. consumers, who also saw a strong rise in prices. Some economists note that the economic data puts the Federal Reserve in a difficult position as it tries to balance its monetary policy between potential risks of a slowing economy and stubborn inflation.
However, commodity analysts have said that this is the perfect environment for gold as it shines as a safe-haven asset, hedging against economic uncertainty and rising inflation.
Some analysts have explained that while the Federal Reserve has struck a neutral monetary policy stance, keeping interest rates relatively elevated, rising inflation makes bonds less attractive as real yields fall. In this environment, gold becomes a more attractive defensive asset.
