Gold futures are trading nearly flat on Friday following yesterday’s steep sell-off as investors try to downplay the impact of Thursday’s better-than-expected U.S. retail sales report and its possible impact on the Fed’s plans to begin tapering its massive stimulus program.
At 13:11 GMT, December Comex gold futures are trading $1754.10, down $2.60 or -0.15%.
Perhaps holding gold prices steady is the weaker U.S. Dollar. Nonetheless, the upside is probably limited because Treasury yields are on the rise once again.
To recap yesterday’s events, bullion slipped nearly 3% on Thursday after an unexpected increase in U.S. retail sales raised expectations that the Fed may reduce its stimulus sooner, which also drove a rally in Treasury yields and the dollar.
If you recall, I’m not one to call gold a safe-haven asset. I believe it’s an investment. People don’t buy it for protection, but to make money. When interest rates rise, the opportunity cost of holding a non-yielding asset like gold goes up. Thereby dampening its appeal as an investment. Furthermore, when the U.S. Dollar strengthens, gold becomes more expensive for foreign buyers. This is another factor weighing on demand.
10-year Treasury Yields Rise Ahead of US Sentiment Report
The 10-year U.S. Treasury note yield are rising on Friday following yesterday’s robust U.S. retail sales report although some say the weaker weekly initial claims report should be noted.
The yield on the benchmark 10-year Treasury not advanced by 1.4 basis points to 1.345%. The yield on the 30-year Treasury bond fell less than a basis point to 1.889%.
Data released on Thursday showed retail sales in August rose 0.7%, versus an estimated 0.8% fall. However, jobless claims for the week ended September 11 came in at 332,000, above a Dow Jones forecast of 320,000.
On Friday, the University of Michigan is due to release its preliminary consumer and inflation expectations data for September at 14:00 GMT. The report is expected to show consumer sentiment rose slightly to 71.9 from 70.3.
A stronger-than-expected consumer sentiment reading could put further pressure on gold prices.
Trader reaction to a short-term retracement zone at $1757.40 to $1738.60 should set the tone for the session.
Look for an intraday upside bias to develop on a sustained move over $1757.40 and for the downside bias to continue on a sustained move under $1738.60.