Gold experiences the risk of a potential violent drop at the New York trading on Wednesday as the price of gold crashed below the 1700 mark. The US inflation data caused the Federal Reserve rate hike bets to increase, thereby supporting temporary Treasury yields and the USD
The week will be rounded out by the US retail sales report for August, due at 12:30 GMT on Thursday, and the University of Michigan consumer sentiment report for September, due Friday.
Those events will probably influence the FOMC market, which may guarantee a key for bullion prices. Fed funds futures show the probability of a quarter for a 100-basis point rate hike.
If the predicted odds increase, the value of gold as an asset will diminish. Although the focus of the Fed is to control the rising prices, they hope to attain a soft landing. The impact of the rising rates will be cushioned with the presence of a fundamentally strong economy, which would grant the FOMC more flexibility.
Furthermore, a higher unexpected retail sales report would probably have a negative impact on gold prices. Analysts expect a 0.1% decrease from July, as shown by the headline figure, due to falling gasoline prices. The number to focus on is a measure that excludes gasoline and autos.
The preliminary Michigan consumer sentiment index is expected to rise to 60.0 on Friday from 58.2 in August. The survey also entails inflation expectations, including estimates for the 1-year and 5- to 10-year measures tracking at 4.6% and 2.9%, respectively.
Gold doesn’t have a good stance even if there is an error in the economic print’s estimation because 75-basis points Fed hike is the base case scenario after the CPI. That will keep Treasury yields supported and allow an increase in prices. The path of least resistance is skewed lower. As the chances for a 100-bps hike increase, with a bearish catalyst being triggered once Fed funds futures hit a 50% chance for the super-sized rate hike, XAU will probably fall.