Gold Prices Surge as Fed Rate-Hike Expectations Cool

The price of gold continued its rally on Monday, August 17, with December futures on the New York Mercantile Exchange (COMEX) increasing by $36.40 or 0.82% to settle at $4,473.70 per ounce. Spot gold also rose $39.59 or 0.90% to $4,415.99 per ounce.

The main driver of this strength was the recent US economic data, which showed that July retail sales unexpectedly fell by 0.6%, marking the largest monthly decline in over a year and far below market expectations of a 0.1% gain. The preliminary University of Michigan consumer sentiment index for August also dropped sharply to 51 from the previous month's 55.2.

The weak economic data significantly reduced market expectations that the Federal Reserve would resume rate hikes in the near term, with interest rate swap markets indicating that traders now assign only about a 30% probability to a Fed rate hike in September, down from 47% a month ago. The US dollar index also softened, slipping 0.03% on Monday against a basket of six major currencies.

Analyst Justin Lin noted that the market broadly believes the Fed is not genuinely hawkish in the near term and emphasized that gold needs to decisively break above $4,400 to confirm its upward momentum has room to extend further.