Gold price rises as geopolitical tensions mount, despite higher US yields

NEW YORK (April 15) Gold price climbed more than 1% in the mid-North American session following solid economic data from the United States (US). Consumer spending was stronger than expected, which could prevent the US Federal Reserve (Fed) from cutting borrowing costs, which would be a tailwind for the golden metal. Nevertheless, physical demand for Gold and risk aversion might keep the precious metal at around current levels.

XAU/USD trades at $2,384 after hitting a daily low of $2,324. Investors remain concerned about possible Israeli retaliation following Iran’s missile and drone attack over the weekend. Even though the White House urged Israel against retaliation, Israel's military chief said, “There will be a response to Iranian missiles and drones launched toward Israeli territory.”

That might underpin safe-haven assets, including Gold and the US Dollar. It wouldn’t be strange if they moved in tandem.

Elsewhere, US Retail Sales in March were robust. What grabbed the headlines was that sales in the control group—used to calculate the Gross Domestic Product (GDP)—skyrocketed sharply, which could be a prelude to strong growth in the first quarter of 2024.

Following the data release, Gross Domestic Product (GDP) estimates for Q1 2024 show that the US economy is expected to grow 2.8%, up from 2.4% estimated on April 10, according to the Atlanta GDPNow model.

Daily digest market movers: Gold shrugs off strong US Retail Sales and elevated US yields

• March's US Retail Sales saw a 0.7% MoM increase, surpassing the expected 0.4%. This rise contributes to a 2.1% growth in Q1 2024 compared to last year's period, signaling strong consumer activity.
• Retail Sales in the control group, which provides a more accurate measure by excluding volatile items, surged from 0.3% in February to 1.1% MoM in March, significantly exceeding expectations of a 0.4% increase.
• Gold’s price remains high even though US Treasury yields surged more than 10 basis points (bps) in the belly and long end of the yield curve.
• In addition, the US Dollar Index (DXY), which tracks the buck’s performance against a basket of six other currencies, gains 0.20% to 106.22, levels last seen in November 2023.
• New York Fed President John Williams said that his baseline scenario projects rate cuts “will likely start this year.” He thinks the policy is restrictive, adding that strong fundamentals are driving consumer spending.
• Data from the Chicago Board of Trade (CBOT) suggests that traders expect the Fed funds rate to finish at 4.965% in 2024.

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