Short sellers have broken the short-term critical support line in the gold market (XAU/USD) on Thursday morning, European time, bringing the metal closer to its yearlong low. The precious metal has been on a downward trend for three days, reaching $1,688 at press time.
After a slow start, interest in US Treasury yields has picked up as traders prepare for the European day and the release of US Retail Sales for August. However, after retreating from a three-month high the day before, benchmark 10-year Treasury rates had renewed daily heights near 3.435% at the latest.
Even though the US Producer Price Index (PPI) displayed weaker readings in August, the US Dollar Index (DXY) reversed its bearish performance from the previous day and is now hovering around 109.90. When compared to market expectations of 8.8%, US PPI fell in August, from 9.8% in July to 8.7%.
Higher yields may have something to do with hawkish Fed predictions and conflicting worries about China, one of the world’s largest buyers of gold.
According to the CME’s FedWatch Tool, there is a 70% possibility of a rate hike of 75 basis points (bps) by the Fed in the coming week, with 30% supporting a full 100 bps rate lift by the Fed. Market sentiment and XAU/USD prices are being weighed down by concerns over China’s economy and the People’s Bank of China’s (PBOC) contradictory actions and unclear signals regarding stimulus spending.
Even though yields and the DXY have gained ground on the upside amid cautious optimism, US stock futures have remained bearish, erasing the optimism of the early Asian session.
Traders in XAU/USD will need to wait for the August US Retail Sales report, which is likely to show no monthly change in order to make an accurate forecast of metal prices. Note that despite recent lower US inflation data, the market’s hawkish forecasts remain high, so stronger Retail Sales reports might strengthen the US currency and impact on gold.