The gold market is testing some resistance just below the key resistance level of $1800 following some weaker than expected economic data. The latest data on retail sales showed a decline of 1.1% in July, down from the revised June reading of a .7% gain. The data was a significant miss as consensus estimates were looking for a rise of .2%.
The reaction to the poor data by the gold market is in line with what may be expected at this point: Poorer data may equal stronger gold and stronger data may equal weaker gold. The market is strongly hoping for the Fed to hold its current rate stance and to continue with its monthly security purchases. Any stronger than expected data may give the central bank further reason for pause and could eventually cause the Fed to begin tapering its asset purchases or quantitative easing.
The headline data was certainly a disappointment. The world is continuing to battle the raging Delta variant as the viral pandemic remains a major obstacle to global growth. With the consumer representing some two thirds of the economy, any cuts in consumer spending are going to hurt. This is not the first instance of consumers cutting back in recent months, either, and could potentially point to a dangerous trend.
As the battle over Fed policy continues, any key beats or misses in the data stream are likely to become increasingly impactful on the markets. The gold market may need weaker data and a weaker dollar in order to move higher from recent levels. The market appears to be lacking any fresh catalysts, and without a bullish catalyst the market may remain quite vulnerable to downside selling pressure if or when it occurs.
In the aftermath of the crippling effects of the Covid-19 virus implemented just a year ago, the globe is now facing the Delta variant of the virus. This variant is having a major impact on some areas, with China and some parts of asia being hit especially hard. The U.S. is also being hit hard, and the threat of a mask mandate or other action may keep investors and markets on the defensive for the time being.
With so many major issues to deal with, the Fed’s Jackson Hole Symposium, to be held next week, will almost certainly be closely monitored. The Fed may provide further clues and clarification on what it sees occurring in the U.S. and global markets. Those clues may be useful in determining the Fed’s plans or next steps and may assist investors with planning accordingly. Recent word has suggested that the Fed could begin tapering its monthly security purchases by November. Any thoughts backing up this notion may be viewed as bearish by markets. Any thoughts to the contrary, however, may be viewed as bullish and could fuel a significant rally in the yellow metal.
The market bulls are gaining control on the daily chart and have positive momentum on their side. The bulls will look to take prices back above previous support at $1800 on a closing basis. The bears will look to take prices back down, targeting key support at the $1700 level.