Gold retreats from 7-week high on Fed rate hike-linked fears

The price of gold has fallen from 7-week highs at $1,987.42 as concerns over the Fed continuing to tighten conditions past the July meeting were rekindled by economic data from the US. As a result, US Treasury bond yields increased, which hurt the price of gold. Earlier on the day, the XAU/USD is trading at $1,969.30, down 0.35 percent. and at the time of writing it is hovering around $1970 per ounce.

Following the release of the first jobless claims data in the United States, which came in at 228K, better than projections and prior estimates of 240K and 237K, respectively, the market odds for a Fed rate hike beyond the July meeting increased to 32.2%, up from last week’s 19.8%.

US Existing Home Sales for June decreased by 3.3%, totaling 4.16 million, less below both May’s 4.3 million sales and expert expectations of 4.2 million.

Stronger-than-expected US labour market data have raised expectations for US rate hikes, which is putting pressure on gold prices. After the US Bureau of Labour Data (BLS) reported that jobless claims were 228K, below estimates, and the prior week were 240K and 237K, respectively, the XAU/USD, the Gold Index, started to decline.

The numbers show a strong labour market, therefore even though the number of continuing claims increased by 33K to 1.754 million from 1.721 million, the Fed would still need to intervene and keep rates “higher for longer.”

Other data revealed a slowdown in the US housing sector, with existing home sales falling -3.3% in June to 4.16 million units, below the 4.3 million in May and below projections for 4.2 million units.

In light of the current situation, traders are reevaluating whether the Fed would raise rates following next week’s Federal Open Market Committee (FOMC) meeting. Market participants have priced in a 25 bps increase to 5.25%–5.50%.

The possibility that the Fed will raise interest rates to 5.50%–5.75%, up from one week’s 19.8% probabilities, is 32.2%. As a result, as seen by the US Dollar Index (DXY), the dollar increased, rising 0.56% to reach 100.850 on the strength of high US Treasury bond yields. The yield on the US 10-year Treasury note is rising by ten basis points (bps), and US Real Yields, as portrayed by 10-year TIPS, advance five bps to 1.580%.

Gold will therefore be doomed for the remainder of the session as traders wait for more incoming US data. Fears of a global economic slowdown may cause investors to flock to safe-haven investments, which could increase demand for the yellow metal. However, traders should be aware that rising US Real yields may reduce XAU’s flows in the US Dollar’s favour.