Gold Prices Rise as Weak US Retail Sales Cut Fed Rate Hike Bets

Gold prices edged higher on Friday and headed for a weekly gain as weaker-than-expected U.S. retail sales further reduced expectations for a Federal Reserve interest rate hike in September.

Spot gold rose 0.5% to $4,374.30 an ounce, while gold futures gained 0.2% to $4,430.05 an ounce. Both were up around 0.7% for the week as softer U.S. economic data supported demand for the precious metal.

The latest boost for gold came after U.S. retail sales fell 0.6% month-on-month in July to $763.6 billion, sharply missing expectations for a 0.1% increase. Core retail sales also declined 0.3%, compared with forecasts for a 0.2% rise.

The weak figures followed July inflation data showing moderating price pressures. Both the consumer price index and producer price index indicated slower annual inflation, while a disappointing jobs report added to signs of cooling economic momentum.

According to the CME FedWatch tool, markets now see roughly a 67% probability that the Federal Reserve will keep interest rates unchanged in September, up from about 56% a week earlier. The probability of a 25-basis-point rate hike has fallen to around 33%. Lower interest rates typically benefit gold because the metal does not offer a yield.

U.S. consumer sentiment also weakened, with the University of Michigan index dropping to 51 in August from 55.2 in July. However, one-year inflation expectations increased slightly to 4.3%.

Gold's gains were limited by rising Treasury yields and higher oil prices amid persistent geopolitical tensions in the Middle East. The United States and Iran remain at odds over the Strait of Hormuz, while shipping disruptions have intensified concerns about global energy supplies.

Brent crude futures climbed 1.5% to $88.40 a barrel and were up 5.9% for the week. Higher oil prices could fuel inflation concerns, potentially complicating the Fed's policy outlook and limiting further upside for gold prices.