Gold edged up on Tuesday after weak US Retail Sales

Gold closed higher on Tuesday after the release of weak US Retail Sales data led to a downward revision in the outlook for US interest rates. The lower-than-expected Retail Sales in May suggests lower consumer spending, which would likely also result in a fall in inflation. Lower inflation, in turn, would result in the Federal Reserve (Fed) moving to cut interest rates.

From markets seeing only a 50/50 chance of the Federal Reserve (Fed) cutting interest rates at its September meeting, the probability rose to 60% after the data release, according to the CME FedWatch Tool, which bases its estimates on the market price of Fed Funds Futures. 

However, futures markets appear to be more optimistic than recent Fed commentary would seem to suggest. At its June meeting the Fed revised its projections for the Fed Funds Rate higher. From expecting three 0.25% cuts in 2024 in their March meeting projections, Fed officials saw only one cut in 2024 in June, on account of stubborn inflation. The expectation of interest rates remaining higher for longer was negative for non-yielding Gold, as it raises the opportunity cost of holding the precious metal.