Gold and silver prices increased on Wednesday as US Treasury bond yields dropped after the release of data showing that retail sales growth had stalled in December.
The stalled growth suggested a weakening economy, which precedes the release of key jobs data.
Precious metals like gold tend to be supported by lower US yields. This is because reduced yields lower the opportunity cost of holding non-yielding assets.
Macro outlook and dip in dollar
Furthermore, shifts in the macroeconomic outlook, such as expectations of slower growth or looser monetary policy, which often accompany lower yields, also bolster precious metals.
Gold was gaining ground, trading back above the $5,050 mark in the Asian session on Wednesday.
This rally partially reverses the modest dip from the previous day, primarily driven by the weakened US dollar following dovish signals from the US Federal Reserve (Fed).
“This, in turn, is seen as a key factor acting as a tailwind for the non-yielding yellow metal. However, the underlying bullish sentiment might cap the upside for the safe-haven commodity,” Haresh Menghani, editor at FXStreet, said in a report.
Bullish traders might also opt to wait for the release of the US Nonfarm Payrolls (NFP) report before positioning for any further gains.
At the time of writing, the COMEX gold contract was at $5,081.96 per ounce, up 1%, while silver was 2.3% higher at $82.205 an ounce.
Economic data
Retail Sales in the US were flat in December, according to a Tuesday report from the US Census Bureau.
This result was below the expected 0.4% increase and followed a 0.6% rise in November.
Combined with evidence of a weakening US labor market, this data has led economists to lower their economic growth forecasts for the fourth quarter, increasing the likelihood of further interest rate cuts by the Fed.
The Greenback continues to be undermined by money markets, which are currently pricing in 58 basis points (bps) of Fed easing throughout 2026.
Fed concerns
The issue of the Federal Reserve’s independence has recently been highlighted.
US President Donald Trump fueled these concerns on Saturday by suggesting he might sue his new Fed chair nominee, Kevin Warsh, should Warsh not agree to lower interest rates.
Further contributing to the debate, Fed Governor Stephan Miran remarked that complete central bank independence is unattainable.
The failure to bolster the USD bulls, despite hawkish remarks from regional Fed Presidents Lorie Logan and Beth Hammack, indicated that gold is likely to continue its upward trajectory.
UBS analysts pointed out that Kevin Warsh, though he favors shrinking the Federal Reserve’s balance sheet, has advocated for lower rates in the past.
“This should support gold, even if longer-term worries about the value of the dollar abate,” they said in a note.
This likely further decline in real US rates should help support investor demand for gold exchange-traded funds by lowering the opportunity cost of holding the non-yielding metal.
Finally, other drivers of the gold rally remain intact, including robust demand from central banks.
Cleveland Fed President Beth Hammack stated the current Fed target rate is near neutral.
She indicated the central bank is well-positioned to observe developments, suggesting policy could remain on hold “for quite some time” due to persistently high inflation and ongoing tariff issues.
Gold’s upside potential
According to experts, gold prices need to surpass the $5,090 per ounce mark for further upside momentum. Currently, prices are just shy of the level.
Meanwhile, UBS analysts have revised their forecast, now predicting that gold will close the year at approximately $5,900 an ounce. This specific projection, they noted, “feeds into our broader positive view on commodities.”
We believe that strong performances from industrial and precious metals have scope to continue, and we anticipate commodities will play a more prominent role in portfolios in 2026, with returns driven by supply-demand imbalances, geopolitical risks, and long-term trends.
Investors holding large positions in gold with significant unrealised gains should consider diversifying their commodity exposure, they said.
By adding assets like copper, aluminum, and various agricultural commodities, investors can introduce new sources of return and potentially stabilise their portfolios, according to the UBS analysts.
