Strong retail sales and dollar strength take gold lower in trading today

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Gold futures traded to a high of $1879.50 overseas last night but then fell sharply off of these highs as the U.S. Census Bureau announced the advanced estimate of retail and food services sales for October 2021. Concurrently, the Federal Reserve released its industrial production data for October. Both reports indicated robust production and spending which was cited as the primary explanation for gold selling off so briskly.

Retail sales in the United States increased last month coming in above estimates. Economists polled by the Wall Street Journal predicted that the report would indicate an increase of retail sales by 1.5%.

The numbers released by the U.S. Census Bureau indicated that monthly advance sales reached 1.7% year-over-year totaling $638.2 billion. This is just over double the growth of retail and food services in September, which came in at $627.5 billion, an increase of 0.8%.

The report retail and food services began with the following comments,Advance estimates of U.S. retail and food services sales for October 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $638.2 billion, an increase of 1.7 percent (±0.5 percent) from the previous month, and 16.3 percent (±0.9 percent) above October 2020.”

The Federal Reserve announced that “industrial production rose by 1.6% in October after falling 1.3% in September.” However, the Fed said that about half of the increase in industrial production reflected a recovery from the effects of Hurricane Ida.

One caveat to the numbers released today is that spiraling inflationary pressures greatly enhanced the amount of spending, which inflated the retail sales numbers that were reported today.

These reports and dollar strength were the forces that moved gold lower today as of 5 PM EST, gold futures basis the most active December contract is fixed at $1852 after factoring in today’s decline of $14.60, or -0.78%. Roughly 2/3 of today’s lower pricing is attributed to dollar strength. The U.S. dollar index gained 52 points, or 0.55%, and is currently fixed at 95.925. Because gold is a trading partner with an absolute negative correlation. When we subtract gold’s decline due to dollar strength a small portion 0.24%, came out of market participants being active sellers.

We created a Fibonacci retracement data set which begins at the lows of this rally that occurred on Wednesday, November 3, 2021, when gold traded to a low of $1758. The data set begins on November 16 at the intraday high of $1879.50. Gold traded to the 23% Fibonacci retracement level, which is fixed at $1851.50. A shallow correction can easily give up 23% before reversing to the primary direction of the current trend, which in this case is up. Below that price point is the 38% Fibonacci retracement that occurs at $1833.30. A break in gold below that price point I believe is highly unlikely. Market participants will see the updated PCE core inflation index for October when it is released on November 24, one day before the Thanksgiving holiday in the United States. This should be the next report that could highly influence gold prices.

Wishing you, as always, good trading and good health,

Gary S. Wagner - Executive Producer