Gold price turned sharply lower on Tuesday after a better than expected report on U.S. retail sales

The gold price turned sharply lower on Tuesday after a better than expected report on U.S. retail sales dampened hopes that the Federal Reserve will launch additional monetary stimulus in the near future.  The spot price of gold tumbled from $1,616 to as low as $1,594 per ounce following the economic data, but subsequently bounced back above the $1,600 level.

Following up on this month’s encouraging non-farm payrolls data, U.S. retail sales for July increased by 0.8% – well above the 0.3% consensus estimate among economists.  In addition, the Producer Price Index (PPI) – a key measure of inflation – rose 0.3% last month, slightly above the 0.2% level economists were expecting.

Millan Mulraine, an economist at TD Securities, noted that “The tone of this report was unambiguously encouraging, as it points to a meaningful improvement in household spending activity after stagnating for three consecutive month.”

The combination of today’s two positive reports – along with the recent employment data – is likely to provide the Federal Reserve with further evidence that the U.S. economy may not require another round of quantitative easing in the months ahead.

As for the gold price, Saxo Bank vice president Ole Hansen commented that today’s sell-off was “Absolutely technical. Traders want to be long, but not at any price.”  Hansen added that there was a “huge jump in volume on the break below $1,605.”

Going forward, he noted that “Now we need to see what the response is. The last few sell-offs have been met by instant buying.  Whether the U.S. retail numbers diminish the chance of QE3 could be the short-term focus now, and has the potential to create a bit of headwind” for the price of gold.

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