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Gold Price Retreats from Inflation-Slowdown Jump as DXY Rallies on China GDP Miss

The GOLD PRICE fell on Monday, cutting one-third off last week's jump versus the Dollar – the strongest weekly gain since the United States' mini-banking crisis in March – as the US currency rallied from its inflation slowdown sell-off on news that China is growing more slowly than expected, writes Atsuko Whitehouse at BullionVault.
The world's second largest economy, China today reported GDP rising 6.3% in the April-June quarter from the same period last year – below consensus forecasts of 7.3% growth – when dozens of major Chinese cities were in anti-Covid lockdown. 
Asia-Pacific markets closed the day lower, while the European regional Stoxx 600 index slipped 0.4%, led by China-sensitive shares like miners, after registering its strongest week since March with a 2.9% jump Friday.
"A weaker-than-expected inflation print triggered [last week's] sell-off in the US Dollar as investors started envisaging an extended pause in the global tightening cycle," says Daniel Hynes, senior commodity strategist at Australasian bank ANZ.
"Nevertheless, the US Federal Reserve remains steadfast in its concerns over inflation, which will remain a headwind for the gold market in the short-term."
Chart of the US Dollar Index vs. the gold price in Dollars. Source: BullionVault
The Dollar index – a measure of the US currency's trade-weighted value versus its major peers – edged higher on Monday after reaching a fresh 15-month low following last week's news of a sharp slowdown in the pace of US consumer price inflation.
Gold prices in US Dollar terms in contrast dropped $15 per Troy ounce from Friday's peak above $1963, a 4-week high reached with the steepest weekly gains since the failure of Silicon Valley and other regional US banks coincided with the 'shotgun' wedding of ailing Swiss bank Credit Suisse with its giant competitor UBS in April. 
Betting on next week's Federal Reserve decision on interest rates now sees a 96% chance that the US central bank will raise by 25 basis points to a ceiling of 5.50%, the highest such cost of borrowing since 2001, according to  the FedWatch tool from derivatives exchange the CME.
Year-end Fed Funds forecasts, however, have edged lower, with the consensus position sliding to 5.39%, the lowest so far this month.
"It's really too early to say that we've declared victory on inflation," Federal Reserve Bank of San Francisco President Mary Daly told CNBC last Thursday, just ahead of the "blackout period" barring Fed staff and Federal Open Market Committee (FOMC) participants speaking publicly until the policy meeting on 25- 26 July.
"While data on consumer prices out Wednesday [was] very positive," Daly remains in "wait-and-see mode...because I remain resolute to bring inflation down to 2%."
Ten-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing costs – fell again Monday, as did major European yields following the weak Chinese GDP data.
Despite Monday's stabilization of the DXY Dollar Index, gold priced in Euros hit a new 4-month low at €1734 while the UK gold price in Pounds per ounce dipped beneath £1490 for the 2nd time in a week.
Gold prices in China, the metal's No.1 consumer market, meantime rose 0.4% to ¥454 per gram, less than ¥2 below of early May's all-time high.
Bullion on the Shanghai Gold Exchange however continued to show a strong premium to London quotes, holding 3-month highs at $17 per ounce – well above its $8 historical average – as supplies were kept tight by Beijing curbing issuance of new gold import quotas for commercial banks.
"Interest in gold [in China] can be ascribed to concerns over the increased fragility in the banking sector," reckons analyst Rhona O'Connell at brokerage StoneX.
Investment in China's vast property sector, which accounts for about a quarter of the economy, worsened in June from May, according to new data Monday.
Cutting interest rates to support the sector, Beijing's central bank has also extended the duration of some existing property loans, helping debtors delay repayment.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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