- The price of Gold strengthened after positive data from China and new fiscal stimuli in the country.
- The US Dollar Index DXY retreated from a six-month high, providing support to the price of the yellow metal.
- Rising US bond yields could provide support to limit the Dollar’s correction.
The price of Gold (XAU / USD) extended its gains for the second consecutive day, trading higher near $1,920 per troy ounce during the European session on Friday. XAU/USD received strong support, likely due to a slight correction in the US Dollar (USD).
In addition, positive data released by China’s National Bureau of Statistics (NBS) revealed encouraging economic trends. Optimism in the markets could serve as support to support Gold prices, along with the recent move by the People’s Bank of China (PBoC) to lower the required reserve ratio (RRR) by 25 basis points (bp ).
China’s retail sales grew 4.6% year-on-year, beating expectations for a 3.0% increase in August and showing an improvement from the previous month’s 2.5% figure. In addition, industrial production exceeded estimates by registering a growth rate of 4.5% in August, compared to 3.7% in July.
The DXY Dollar Index retreated from a recent six-month high, trading lower around 105.20. However, the likelihood of a large corrective decline in the Dollar appears limited, largely due to the caution of market participants in response to the hawkish stance of the US Federal Reserve (Fed) on monetary policy.
Elsewhere, US Treasury yields recovered intraday losses, with the US 10-year bond yield at 4.30% at the time of writing. Rising yields will support the dollar.
Expectations of the Fed’s commitment to tighter monetary policy, which may include further interest rate hikes or tightening measures, are expected to prevent traders from taking bold positions in non-yielding assets such as yellow metal. Monetary policy decisions and communications from the Fed will continue to be the focus of the Dollar’s movements in the short term.
In addition, the latest economic data from the United States is generally positive. Initial jobless claims for the week ended September 8 were better than expected, with 220,000 new claims. We report a slight improvement from last week’s figure of 217,000.
The core Producer Price Index (PPI) for August was in line with expectations with a 2.2% increase, although it was slightly lower than the previous rate of a 2.4% increase. Retail sales also showed improvement, rising 0.6% from 0.5% last month, beating market expectations that predicted a slowdown to 0.2%.
Taken together, these data suggest a relatively healthy economic environment in the US, which may affect market sentiment and influence trading decisions.
Market participants will closely monitor the release of the preliminary US Michigan Consumer Sentiment Index during the American session. Consensus expectations pointed to a slight decline in the reading from 69.5 to 69.1.