Gold prices retreated for a second day on Tuesday, pressured by rising U.S. Treasury yields and increasing demand for higher risk assets. Yields rose in reaction to the robust U.S. economic news, which increased the chances of a Fed rate hike later this year. Higher yields made the dollar a more attractive investment, hurting demand for dollar-denominated gold.
December Comex Gold futures settled the session at $1276.90, down $13.50 or -1.05%.
The gold market was under pressure early in the session from the news that North Korean leader Kim Jong Un had delayed a decision on firing missiles toward the U.S. Pacific territory of Guam, but it was the economic data that sent gold sharply lower.
The U.S. Dollar rose by more than 1 percent against the Japanese Yen with the USD/JPY reaching its highest level in more than a week. The EUR/USD fell to its lowest level since July 28. Both the Euro and the Japanese Yen are the highest weighted currencies in the dollar index. Foreign demand for gold was negatively affected by the dollar’s strength because the metal is a dollar-denominated commodity.
Gold prices were also pressured by robust economic news that drove up U.S. Treasury yields because it raised the odds of a Fed rate hike in December. According to the U.S. Commerce Department, July retail sales posted their largest gain since December 2016, coming in a robust 0.6% higher. June’s figure was also upwardly revised to 0.3 percent. The government said the increase was related to consumer purchases of motor vehicles as well as discretionary spending.
In other news, the New York Fed’s Empire State manufacturing index surge 15 points to 25.2, its highest in nearly three years. Economists were looking for an unchanged reading of 9.8. Import prices came in as expected, up 0.1%, but higher than the previous -0.2%. Business Inventories were slightly worse than the estimate.
The National Association of Home Builders (NAHB) said Tuesday the Housing Market Index (HMI) gained 4 points to 68 in August, beating the median forecast. The index reached its high level seen earlier this year and represents strong building confidence among the nation’s home builders.
Forecast
Today, investors will get the opportunity to react to U.S. Building Permits and Housing Starts. Building permits are expected to show a 1.25 million unit increase. Housing starts are expected to come in at 1.22 million units.
The market moving event, however, will be the FOMC Meeting Minutes, due out at 1800 GMT, if it reveals any fresh insight from the central bank on inflation.