Gold Reacts To Higher US Bond Yields

Gold retreats for the second straight day as worse than expected US economic data dominated news headlines; US retail sales dropped the most in 10-months and the US 10-year T-bond yield hits 1.771%, weighing on the non-yielding metal.

The precious metal slips for the second-consecutive day amid dismal US economic data revealed on Friday. Gold spot (XAU/USD) is trading at $1,816.

During the North American session, the Gold Index XAU/USD failed to capitalize on worse than expected US Retail Sales, Industrial Production, and UoM Consumer Sentiment. Meanwhile, the US 10-year benchmark yield advances firmly five basis points, sitting at 1.771%, regaining some ground, after hitting 1.808% at the beginning of this week.

Dismal US macroeconomic data is mainly ignored by investors as far as the market reaction is concerned. On Friday, the US Department of Commerce revealed December’s Retail Sales report, which portrayed a contraction of 1.9%, worse than the -0.1% estimated by economists. Excluding gasoline and autos, slumped, even more, 2.5%, lower than November’s 0.1% drop. In the meantime, US Industrial Production shrank 0.1%, when analysts forecasted a 0.3% growth.

Adding fuel to worse than expected US economic data releases, the UoM Consumer Sentiment fell to 68.8, versus 70.0 estimated.

Earlier in the day, the New York Fed President John Williams crossed the wires. He said that “the economy is near maximum employment” and emphasized that the Fed needs to tackle inflation. Williams further noted that some “factors driving inflation are still related to pandemic effects.”

John Williams expects inflation would drop to 2.5% by the end of the year, and it would reach the US Fed’s 2% target in 2023.

San Francisco Fed’s President Mary Daily said that the main reason for inflation is Covid-19. She said that the central bank needs to adjust its policy and that “slowing the economy a little bit with rate hikes will help bring demand down into better line with supply.”

Technically; gold’s daily chart is neutral-bullish biased. Whilst the daily moving averages (DMAs) reside below the spot price; the 200-DMA is trapped between the 50 on top and the 100-DMA on the bottom.