Gold inches up as U.S. retails sales miss expectations

Gold erased some of its earlier losses in the day following a report by the U.S. Commerce Department, which showed that U.S. retail sales rose less than expected. Fading fears that the U.S. will launch a military attack against Syria after the latest diplomacy meeting between top U.S. and Russia officials curbed safe haven demand for the metal.

On the Comex division of the New York Mercantile Exchange, gold futures for delivery in December traded at $1 320.10 per ounce at 13:03 GMT, down 0.80% on the day. Prices rebounded from a five-week low of $1 304.80 per ounce that was hit earlier in the European session, while days high was touched at $1 330.70 per ounce. After plunging 2.8% on Thursday, the precious metal extended its weekly decline to over 5.2%.

Gold erased some of its prior daily losses following todays retails sales which missed expectations but is still headed to its worst weekly performance in more than two months. The Commerce Department reported that U.S. retail sales rose for a fifth consecutive month by 0.2% in August, but mismatched expectations for a 0.5% surge. Julys reading received an upward revision to 0.4% from an initially estimated 0.2% advance. In August, Americans bought more automobiles, electronics, furniture and appliances, while cutting back expenditures for clothing, sporting goods and building materials. Retail sales account for 30% of consumer spending, which itself makes up for 70% of the U.S. Gross Domestic Product.

Core retail sales, which exclude automobiles, gasoline and building materials, rose by 0.2% after gaining 0.5% in July and matched the average monthly increase for the second quarter.

Retail Sales ex Autos, which exclude the volatile automobile sales, were up 0.1% last month, underperforming expectations for a 0.3% surge. Julys reading was revised up and showed a 0.6% gain after initially being estimated at 0.5%. The big difference to the general indicator was due to a significant rebound of sales at auto dealerships, which rose by 0.9% in August after contracting 0.5% in July.

In a separate report, the U.S. Labor Department reported that producer inflation rose above expectations both on monthly and annual basis. The Producer Price Index surged 0.3% in August after remaining flat in July and beating projections for a 0.2% increase. Year-on-year, wholesale prices rose by 1.4% after advancing 2.1% a year earlier but surpassing expectations for a 1.3% gain.

Core producer inflation, which excludes the more volatile energy and food expenditures, remained unchanged from a month ago after rising for nine consecutive months. Analysts expected a 0.1% advance. Year-on-year, Core PPI gained 1.1%, compared to an anticipated 1.3% advance and last years 1.2% surge.

The underperforming retail sales and moderate inflation however couldnt shift market players sentiment that the Federal Reserve will pare its bond purchases next week. Inflation is expected to gain momentum as the economy improves further. According to a Bloomberg survey conducted last Friday, the central bank will trim its monetary stimulus by $10 billion after the meeting. Goldman Sachs analysts shared the same prediction.

Meanwhile, gold traders turned most bearish since June on both speculation over QE tapering incoming and tension in Syria receding. Out of twenty-five analysts survey by Bloomberg, fifteen expected prices to extend their decline into next week. Seven wagered that the metal will gain, while three remained neutral. This was the largest number of bears since June 21.

Receding Syria tension

The metal continued to be pressured as easing tension between the U.S. and Russia and Syria curbed safe haven demand. On Tuesday, Foreign Minister Walid al-Muallem said during a trip to Moscow that Syria had accepted Russia’s proposal for granting international control over its chemical weapons as a way for peacefully resolving the conflict with the U.S. and averting military intervention.

President Barack Obama asked Congress in a televised address to the nation later on Tuesday to delay voting for authorization of military action against Syria, seeking a diplomatic resolution to the problem.

Yesterday, U.S. Secretary of State John Kerry and his Russian colleague Sergei Lavrov met in Geneva to begin discussing Moscow’s plan to bring Syria’s chemical arsenal under international control. Kerry however said that military action may still be needed if diplomacy fails. The two diplomats will discuss the securing, transporting and destroying Syria’s chemical weapons in today’s talks. Meanwhile, Syrian President Bashar al-Assad said that the U.S. must cease threatening with military intervention in the country’s civil war and stop arming rebels in return for relinquishing control Syria’s chemical weapons.

On Friday, the United States and Russia agreed to push again for an international conference, aiming at ending Syrias civil war and averting military action against the Middle Eastern country. The two diplomats are due to meet again on September 28 during the United Nations General Assembly in New York.

“We are committed to trying to work together, beginning with this initiative on the chemical weapons, in hopes that those efforts could pay off and bring peace and stability to a war-torn part of the world,” John Kerry said. “Much will depend on the capacity to have success here in the next hours, days, on the subject of the chemical weapons.”