Gold futures surged on Thursday, with the February contract settling at $2746.30, after trading to an intraday high of $2757.60, approaching the previous peak set on December 12th. The rally was fueled by disappointing retail sales data and subsequent dollar weakness.
The precious metal nearly matched its December 12 record when February gold traded to an intra-day high of $2759, and $2761 on the previous day. However, the December peak proved unsustainable, as gold would subsequently drop $48.60 to settle at $2705.20.
The December decline was triggered by an unexpected inflation report, specifically the Producer Price Index (PPI) for November, which showed a 0.4% monthly increase—double the economists' forecast of 0.2%. This followed October's 0.2% rise, bringing the annual headline PPI to 3%.
The market's reaction to the PPI data initiated a significant correction, pushing February gold futures down to $2598.10 by December 18. After a modest recovery of $10.40 on December 19, gold staged a strong comeback. Upward momentum would continue until today and gain approximately $148 to reach today's settlement price of $2746. Today's gain of of $24.30 (0.89%) came as response by traders to the weaker-than-expected retail sales report.
According to the U.S. Commerce Department, December retail sales rose 0.4%, falling short of the expected 0.5% increase and down from November's revised 0.8%. This data, combined with Wednesday's lower core Consumer Price Index reading, has strengthened expectations for Federal Reserve interest rate cuts, pressuring the dollar and yields.
Christopher Louney, commodities strategist at RBC Capital Markets, noted, "Gold's data dependency is clearly present in pricing, especially with this week's inflation data and the related shift in swap traders back to pricing in a rate cut by July. While our price view is unchanged, this is indicative of the bouts of strength (and weakness) that we expect in gold. This, on balance, should lead to gold holding and its resiliency enduring."
Despite the market optimism, a rate cut at the upcoming Federal Open Market Committee meeting on January 29 appears unlikely, with only a 2.7% probability. Interest rate futures traders are targeting July as the month when the Fed will have cut interest rates, with just a 25.2% chance that the Fed will maintain its current Fed funds rate between 4.25% and 4.50%.
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