Gold has started the week with sharp gains. In Monday’s North American trade, the spot price for one ounce of gold is $1227.98, up 0.85% on the day. Earlier in the day, gold prices touched a high of $1233, its highest level since mid-July. On the release front, U.S data was mixed. On the release front, U.S retail sales were much softer than expected. Retail Sales posted a meager gain of 0.1%, shy of the estimate of 0.4%. Core Retail Sales surprised with a decline of 0.1%, compared to an estimate of 0.4%. This marked the first decline since June 2017. There was better news from the manufacturing front, as Empire State Manufacturing Index strengthened to 21.1, above the estimate of 20.4 points. Later in the day, the U.S Treasury is expected to release the semi-annual currency report.
Gold prices have dropped sharply in recent months. During the April-September period, gold slumped some 10 percent. However, October has taken a reverse direction, with gains of 3.0 percent. The U.S economy in excellent shape and inflation growing higher, and that has allowed the Federal Reserve to stay on track with gradual increases in interest rates, even with President Trump expressing his displeasure over rate increases. In October, the Fed raised rates for a third time this year, and the odds of a December rate are pegged at 78%, according to the CME Group. Furthermore, the Fed indicated that three more rate hikes are on the way in 2019. This vote of confidence in the economy has strengthened the U.S dollar and conversely, weighed on gold prices.
Will there be any surprises in the U.S Treasury currency report? The report provides details of global exchange rate policies, as well as a list of countries which are deemed currency manipulators. In the April report, the U.S did not name any of its major partners as currency manipulators. Since then, the Trump administration has imposed some $200 billion in tariffs on Chinese goods. China has retaliated with its own tariffs on U.S goods, and there has been speculation that China could respond to the U.S tariffs by devaluating the Chinese yuan in order to bolster Chinese exports. In 2015 and 2016, the markets dropped sharply on fears that China would implement a major devaluation of its currency. Traders should treat the report as a market-mover.
