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The gold market saw some selling pressure on Tuesday as investors returned from the long Martin Luther King Jr. holiday weekend. At lunchtime Tuesday, gold is down by nearly $10 per ounce, but is holding above the key $1900 level. After hitting a fresh nine-month high overnight, gold saw fit to decline during the day session. A moderate decline such as that seen Tuesday is nothing unusual and may even signal health within a market that is in an uptrend as gold is. Some more bad data out of China may also be playing a role today, as Chinese economic growth registered a paltry reading of 3% for 2022. That was the slowest Chinese growth rate since 1976 and may show just how much of an impact Covid has had on China and the world.

As the globe’s second-largest economy, China’s growth rate for 2023 will become increasingly important as the world looks to shift back into a high growth mode. If the Chinese economy continues to sputter or if areas of China again become closed due to Covid lockdowns, the outlook for the global economy in the year ahead may deteriorate significantly. Slowing global growth may yet be another factor the Fed will have to consider as it decides whether to continue raising rates as it has done the past year. With concerns of a recession already elevated, the Fed may elect to tread carefully if Chinese growth does not accelerate.

The gold bulls have a 2.5-month uptrend at their backs to help them push the market higher. The bulls will try to target resistance at the $1950 level next. A close produced above this key area may set the stage for a rapid rally higher that could potentially put gold within striking distance of previous all-time highs. The bears have their work cut out for them. The bears must first produce a close below the $1800 level. If able to do so, they would then target the recent upside breakout point at $1700. A close below $1700 could be very bearish for the market, as it may not find much to stop selling before hitting the $1500 level. The bulls are likely to remain in control, however, as hopes for an increasingly dovish Fed may be on the rise.

The FOMC meets again in two weeks. The Fed is unlikely to hike as it did previously, however, and a 75 or 50-point hike is unlikely. The central bank will likely raise rates by 25 basis points to keep them rising but not do so in an overly hawkish fashion. The Fed has said that rates may need to remain higher for longer, and it may no longer feel such a rush to get inflation down now that some key inflation data pieces have shown a slowdown in price pressures. On the other hand, if inflation data does show a pick-up in the weeks and months ahead, the Fed may keep raising rates until the terminal rate is above 5.25% or even more. Such rate levels could cause the U.S. economy to enter recession, however, and the Fed will almost certainly try to avoid taking rates to levels high enough to cause a recession.