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Gold Holds $1900 after Strong US Retail Sales and China’s Surprise Rate Cut

GOLD PRICED in the US dollar briefly dropped to a 7-week low below $1900 with strong US retail sales, while the gold premium in China rose to 10-month highs, as Beijing’s surprise rate cut deepened concerns over the health of the world second largest economy, writes Atsuko Whitehouse at BullionVault.
The US Commerce Department's report released on Tuesday showed that US retail sales rose 0.7% last month after hitting 0.3% in June, adding to evidence that the US economy remains on a strong footing.
Gold priced in the US dollar dropped to $1896 per ounce, the lowest since the end of June 2023, before recovering to its psychological level of $1900.
China’s central bank unexpectedly cut key policy rates, the most since 2020 an hour before the release of a batch of July data on Tuesday. 
"All the main activity indicators undershot consensus expectations in July, with most either stagnant or barely expanding in month on month terms," said Julian Evans-Pritchard, economist at Capital Economics.
Global stocks remained at near five-week lows on Tuesday as Europe’s Stoxx 600 declined 0.7%, while Asian shares were down 0.4% as US equity futures pointed to a drop at the open.
Ten-year US Treasury yields – a benchmark rate for government as well as many finance and commercial borrowing – meanwhile rose to a nine-month high at around 4.23% as a selloff in bonds.
The People’s Bank of China (PBOC) cut its one-year medium-term lending facility rate, which affects loans to financial institutions, by 15 basis points to 2.5%, its lowest level since it was launched in 2014.  
Gold prices on the Shanghai Gold Exchange meantime edged higher to 2-week high at ¥456 per gram as it continued to show a premium of multi-month highs to London, increasing to $43 per ounce on Tuesday, after wholesale bullion in the metal’s No.1 consumer market increased the weekly average to $36 last week, the highest since October 2022 when gold priced in Yuan was 17% lower.
China Gold: Premium/discount to London: Source BullionVault,SGE
That means Shanghai gold has averaged more than $16 per ounce above London quotes so far in 2023, almost 3 times last year's $5 average. 
“China’s deflation is a warning sign about economic growth, and gold demand will continue to outrun supply,” said Bernard Sin, regional director, Greater China, at MKS PAMP.
Nikos Kavalis, managing director at consultancy Metals Focus Ltd meanwhile said “the outlook for Chinese gold demand looks fairly lacklustre.”
“It’s not great, it’s not bad,” he continued. 
“But what we’re definitely seeing is tighter supply conditions,” as Bloomberg reported possible government curbs on imports of the precious metal.
A lack of gold import licenses last September, imposed as the Yuan fell to 15-year lows versus the Dollar, drove Shanghai premiums to 6-year highs above $25 per ounce, also masking a retreat in Chinese consumer gold demand with a strong differential between London and local prices.
Today’s data released by the National Bureau of Statistics (NBS) largely undershot expectations and showed growth had slowed in retail sales and industrial production.  Chinese officials also announced that they are to stop publishing data on youth unemployment, weeks after the rate hit a record level in June 2023.
Data released last week had already fuelled concern over growth prospects in the world’s second-largest economy which showed that consumer prices posted their first annual decline in more than two years in July 2023 and worse-than-expected trade numbers.
"And with financial troubles at developers such as Country Garden likely to weigh on the housing market in the near-term, there is a real risk of the economy slipping into a recession unless policy support is ramped up soon," Evans-Pritchard continued.
Country Garden, China’s largest private homebuilder, missed payments on international bonds last week and suspended trading in at least 10 of the company’s corporate bonds from Monday.
The Dollar index – a measure of the US currency's value versus its major peers – stayed firm after four week uptrend to 5 week high as Chinese Yuan fell further to the weakest since 4 November before bouncing back as major state-owned banks were seen selling dollars to support the local currency.
Wholesale bullion in the spot market for UK investors was down 0.4% to £1498 with the pounds supported by mixed employment data in FX markets and 0.3% to €1743 for European investors.
Against expectations of an unchanged jobless rate of 4% in the UK, the number of people filing for unemployment edged higher to 4.2%.  Furthermore, employment growth also disappointed to the downside and fell by 66,000, against an expected 75,000 increase. The first drop in job creation in over a year pointed to a cooling labour market.
Headline pay however surged to 8.2% month on month, the highest level since 2001, which firmed  markets expectation of another rate hike by the Bank of England.
Traders' bets of a pause on rate hikes by Federal Reserve in September fell to 86.5% after the US retail sales data, compared with 89% before, according to the CME's FedWatch tool.


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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