Gold Loses Battle as Robust Economic Data Fuels Tightening by Federal Reserve
The price of gold has been falling as it tests support at $1,850 an ounce, reacting to strong economic data which suggests that the Federal Reserve may increase interest rates.
Retail sales in January rose by 3% compared to the expected 1.8%, and U.S. inflation data showed annual CPI at 6.4% in January, which was higher than anticipated. This has increased expectations for more rate hikes by the Fed, with some Fed speakers also tilting towards a hawkish stance. This re-pricing of how many more rate hikes the Fed will have to resort to before pausing is costing gold its January gains and is diminishing the appeal of the precious metal, as it does not generate a yield for its holders.
Additionally, China's buying activity has stopped, and Turkey has halted imports of gold following an earthquake, further weakening gold's demand.
Analysts have a bearish outlook for gold unless buyers step in to buy the dip, with gold set to drop below $1,800 an ounce from a technical perspective. Year-to-date gold is up only 0.8%, after rallying more than 6% in January.
The key outside markets, such as the U.S. dollar index and crude oil prices, are also in a bearish daily posture for the metals markets.