Gold Prices Rebound From Key Support As Yellen Softens Rate Expectations

New York (July 15)  Gold prices rebounded this week with the precious metal rallying 1.33% to trade at 1228 ahead of the New York close on Friday. The advance has been supported by continued weakness in the greenback with the DXY down more than 0.7%. 

The June Consumer Price Index (CPI) & Retail Sales figures came in shy of consensus estimates on Friday, fueling another sell-off in the dollar. The data comes on the back of this week’s semi-annual Humphrey Hawkins testimony before congress where Fed Chair Janet Yellen cited a more dovish outlook on monetary policy. The committee judged that “because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance.” At the same time, Yellen left the door open for further easing measures should market conditions deteriorate. 

The commentary suggests that while the Fed does see the economy gathering pace, Yellen and Co may be concerned that the central bank will lack the ammunition to respond to another crisis given the current policy stance- shifting the focus to the balance sheet off-load. As such, markets have seen a slight re-pricing in expectations for a December hike with Fed Fund Futures now pricing a 39% likelihood for a 25bps increase in the benchmark interest rate. U.S. data is light next week and for gold prices, the focus remains on the sharp reversal seen this week off support.

DailyFX