Gold prices fell sharply on Thursday as rising Treasury yields lent support to the dollar after unexpectedly robust US retail sales data.
The precious metal fell 2% to a month low of $1,760 an ounce as the US currency climbed - the dollar index, a measure of the greenback's relative strength against its main rivals, rose 0.4% to 92.89.
Silver fared even worse – down 3.4% at $22.99 an ounce, while platinum and palladium remained flat – although both suffered hefty losses earlier in the week following predictions of reduced demand from motor manufacturers.
Retail sales surprise
The losses for gold and silver – along with the gains in the dollar and Treasury yields – have been driven by US retail sales data for August. The figures showed month-on-month growth of 1.8%, not including vehicle sales, beating expectations of a 0.2% fall.
"The bottom line here is that this report suggests Delta fears aren’t stopping people spending some of their abundant cash resources on goods, even as they retreat from services. These data will trigger a wave of upgrades to forecasts for Q3 consumption and GDP growth," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Indeed, the market reaction to the data suggested investors were not convinced by the Federal Reserve's interpretation of inflationary pressures as "transient", and were positioning for a slightly more hawkish stance when the Fed's Open Market Committee meets on Wednesday.
"We think that an expectation of tighter Fed policy in response to persistently high inflation will push up US yields and boost the US dollar in the coming months, which will weigh on the prices of all commodities, but particularly gold," said Caroline Bain, chief commodities economist at Capital Economics.
Technical support fails
Gold fell through several technical support levels on Thursday, with $1,762 being a vulnerable mark, according to Steen Jakobsen at Saxo Bank.
Jakobsen, Saxo's chief investment officer, added: "Gold looks increasingly in danger of a bigger correction after investors failed to respond positively to the post-CPI drop in US Treasury yields. Ahead of next week’s FOMC the market could be softening with no obvious trigger for renewed demand."