Gold Prices Climb as Fed Rate Hike Expectations Recede on Soft Global Economic Data

GOLD PRICES edged higher to $1340 per ounce on Monday morning in London following weaker-than-expected data for the US, China and Japan, the world's three largest economies, writes Steffen Grosshauser at BullionVault.

Friday's US retail sales data showed a moderation in consumer spending which some market observers believe could lead to a slower economic growth in the third quarter of 2016. The data sent the Dollar towards its lowest level since June and lowered expectations of a Fed interest rate hike before December.

Gold traded between $1334 and $1342 on Monday so far, up from last week's close of $1336 per ounce, while global stocks stayed near 1-year highs.

"Friday's soft US retail sales and producer prices data may provide some respite for the metal this week," noted precious metals trader Sam Laughlin at Swiss refining and finance group MKS Pamp.

"However participants are pulling back their long bets, which is weighing upon rallies." 

"We don't expect to move too far outside of the $1330-$1360 range over the short term," Laughlin added, reminding investors that the summer holidays in the Northern hemisphere are also likely to keep gold trading thin and range-bound.

"We maintain our overall bullish long-term view, given the negative/low real interest rate environment and persistent economic headwinds, highlighted by the latest figures from China," said James Moore, research analyst at FastMarkets.

According to data released on Friday, the Chinese industrial production, retail sales and fixed asset investment grew weaker than expected.

Japan's GDP also grew at a rate of only 0.2% in the second quarter, below market forecasts of 0.7% and after 0.5% in Q1. Apart from the government's new stimulus package worth $265bn, the Bank of Japan has also been running on negative interest rates since the beginning of this year.

In other metals, silver was up around 0.6% at $19.90 per ounce on Monday morning. Platinum and palladium also rose again after both metals dropped to a 2-week low last Friday. Base metals stabilised after they closed last week on average 1.5% down.

Brent crude oil continued its recovery for a third day and reached $47.15 per barrel after Saudi Arabia's Energy Minister suggested last week a potential producer action at the next OPEC meeting in September.

Hedge funds and other leveraged speculators cut their net long positions in Comex gold and silver futures and options for the fourth time in five weeks. They fell 4.3% to 255,773 contracts in the week to 9 August, Commodity Futures Trading Commission (CFTC) data showed on Friday. The holdings have reached an all-time high of 286,921 on 5 July.

Holdings in the world's biggest gold exchanged-traded fund SPDR Gold Trust (NYSEArca:GLD) decreased 1.2% to 960.45 tonnes on Friday. 

This week, market participants wait for the minutes of the Federal Open Market Committee on Wednesday looking for new clues on the next rate hike by the Federal Reserve.

Meanwhile in the UK, investors await the reports on employment, consumer prices and retail sales to be published this week to see the continued impact of the Brexit referendum on the economy.

However, the exit from the European Union could be delayed until late 2019, as Prime Minister Theresa May indicated she would not invoke "Article 50" this year and one source even commented it "could be delayed until autumn 2017" as the people in charge "don't even know the right questions to ask when they finally begin bargaining with Europe".