Gold Prices Rise as Unexpected Drop in US Retail Sales Fuels Fed Pause Hopes

Gold prices gained on Friday after an unexpected decline in U.S. retail sales for July strengthened the case for the Federal Reserve to pause its interest rate hiking cycle at its next meeting.

By 9:47 a.m. ET, spot gold was up 0.9% at $4,389.44 per ounce, while gold futures rose 0.6% to $4,447.97 per ounce, according to Investing.com data. The precious metal is on track for its second consecutive weekly gain.

Weak Data Bolsters Dovish Outlook

The move higher followed data showing a surprise contraction in retail sales, adding to other recent signs of a cooling U.S. economy. This week's inflation figures also pointed to moderating price pressures in July.

In response to the weakening economic signals, money markets are now pricing in a probability of more than two-thirds that the Federal Reserve will keep interest rates unchanged at its September policy meeting. This outlook is a positive driver for gold, as lower interest rates reduce the opportunity cost of holding the non-yielding asset.

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Geopolitical Risks and Market Sentiment

Investors remain focused on upcoming U.S. employment data and remarks from the Federal Reserve Chair at the Jackson Hole economic symposium later this month for further clues on the path of monetary policy.

However, analysts at ANZ noted that the recent rally has prompted some profit-taking, particularly after gold prices briefly crossed the key technical level of the 100-day moving average. They also pointed to geopolitical uncertainty in the Middle East, specifically concerning the Strait of Hormuz, as a potential source of volatility. A flare-up in tensions could drive energy prices higher, reigniting inflation concerns and potentially forcing the Fed to maintain a more hawkish stance.