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The gold market is off to a tough start as the trading week gets underway. The yellow metal is being sold off hard today in early action as some disappointing data from China takes a toll. The recent Chinese data showed weakness in July for real estate, factory output, investment, and more. It has added to already-robust fears of a global recession this year.

The poor Chinese data comes at a tricky time for central banks as well. The Central Bank of China is now going to lower interest rates and boost liquidity to support its weakening economy. This move comes at a time when the U.S. and many other global central banks are trying to raise interest rates to battle inflation.

China is the world’s second-largest economy. Its central bank actions could have a dovish impact on other central banks. The move by China to lower rates could give the U.S. Fed something to think about as its next FOMC meeting approaches. There are still several weeks until the Fed does meet again, and it will therefore also get the opportunity to scrutinize more economic data before making any decisions on rates.

The idea of whether rates rise further from here may become increasingly important as trading volumes return in a few weeks. If the Fed elects to keep up the fight against inflation, it could keep stock investors on the defensive. If the Fed decides to abandon the fight, however, it could encourage buying in stocks and risk assets.

The lowering of rates by China this week may keep the Fed hawks at bay. China is the world’s second-largest economy and thus could have a dovish influence on other global central banks. Whether it keeps the Fed from another aggressive rate hike next month remains unclear, but it will certainly give the Fed something to think about.

The Fed may have already laid the groundwork for pivoting away from the inflation battle. Chairman Jerome Powell said the Fed would rely on the data stream to determine if more rate hikes are appropriate. The Fed seems very unlikely, however, to take rates to where they may need to be to fight inflation effectively. That is why the central bank could elect to let inflation run its course.

If the Fed does decide to put a halt to its inflation battle, stocks and risk assets may see renewed buying interest. The notion of higher rates could disappear and do so quickly if the Fed sends the message it is giving up. Removing the threat of higher rates could dramatically change market dynamics, and gold could possibly benefit as well as the opportunity cost dwindles.

The yellow metal could remain largely sideways in the weeks ahead. Once trading volumes return in early September, however, the market could make a more sustainable run higher or lower. The bulls and bears still have the same initial targets for now: $1700 on the downside and $1800 on the upside. Once either level is broken on a closing basis, the market could continue to run in that direction for the next several months or longer.