Gold remains on its back foot after strong US Retail Sales

• Gold fails at $2,665 and resumes its near-term bearish trend as the US Dollar picks up.
• Investors’ concerns about a “hawkish cut” by the Fed on Wednesday are buoying US Treasury yields.
• XAU/USD remains under pressure, approaching support at the $2,630 area.

Gold’s (XAU/USD) upside attempts have been short-lived. The precious resumed its downside trend on Tuesday as the strong US data feeds speculation that the Federal Reserve (Fed) will adopt a hawkish stance after cutting rates on Wednesday.

US retail Consumption increased beyond expectations in November, confirming the upbeat economic outlook depicted by the stronger-than-expected US preliminary S&P Global Purchasing Managers Index (PMI) figures seen on Monday.

The prospects of a steady US growth in the fourth quarter with inflation picking up and Trump's policies likely to push price pressures higher, investors are bracing for a hawkish Fed cut on Wednesday. This scenario is boosting US Treasury yields, acting as a headwind for Gold. 

Daily digest market movers: Gold suffers on hopes of a hawkish Fed 

• Gold continues to lose ground as interest in the Middle East conflict recedes, at least for the moment. The focus now shifts to the US Federal Reserve, which starts its two-day monetary policy meeting today.
   
• US Retail Sales jumped by 0.7% in November, from an upwardly revised 0.4% rise in October, beating expectations of a 0.5% increase. Consumption amounts for more of 60% of the US GDP and these figures endorse the view of US economic exceptionalism in a context of global economic slowdown.
   
• US data from Monday revealed that business activity in the services sector expanded faster than expected in December, suggesting that the economy has remained growing at a healthy rate in the fourth quarter.
   
• Futures markets are almost fully pricing a 25 bps interest rate cut on Wednesday, according to the CME Group’s FedWatch Tool, but less than a 30% chance of more than two quarter-percentage cuts in 2025.

Technical analysis: XAU/USD is under pressure with $2,630 support on focus

Gold keeps heading south after rejection at the $2,720 resistance area last week. A potential double top at the abovementioned level and the bearish engulfing candle last Thursday are keeping sellers hopeful.

The negative candle on the 4-hour chart suggests an increasing bearish momentum. The pair might find some support in the $2,630 area (December 9 low), although the key downside target is the November 25, 26, and December 6 lows at around $2,610.

On the other side, resistances are Monday’s high at $2,665 and Friday’s intra-day level at $2,690.
 

XAU/USD 4-Hour Chart

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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