The gold market is trading just above the unchanged mark in afternoon action Monday. Up by less than $1 per ounce, the yellow metal has been slightly higher and slightly lower on the day. Lazy summertime price action like this is typical this time of year, and several more weeks of this could be seen in the absence of any fresh bullish or bearish catalysts. This week will have numerous pieces of economic data for the markets to digest, and inflation data, in particular, could be market-moving for gold.
Likely the biggest potential data point of the week will be Wednesday’s release of the latest Consumer Price Index data for June. The report is expected to show a rise of 5.0% year-over-year compared to the prior reading of 5.3% in May. The report will be followed up by the most recent Producer Price Index data set for release the day after. Inflation has been the focal point of the financial media for some time now. A large increase in Wednesday’s CPI data has the potential to fuel significant selling across asset classes. A sharp decline, however, could have the opposite effect and could send buyers into the markets in a hurry. A large hit or miss could also affect the Fed and its decisions regarding policy this month when it meets.
An inflationary reading below 5% may be something that is celebrated, but it is still far exceeding the Fed’s desired target of a 2% annual rate. If the inflation data this week is at or near expectations, the Fed will almost certainly hold course. Although the central bank may refrain from hiking rates further, it is unlikely to begin lowering them at the same time. The Fed could, therefore, discuss at its next meeting its plans to hold rates steady for some time yet.
In addition to the Fed and its policy on interest rates, markets will also continue to pay close attention to the global geopolitical landscape. The war in Ukraine rages on, and worries are increasing that Russia could turn to nuclear weapons in the months ahead. The Russian invasion of Ukraine is not only a source of concern, but it is fueling other sources of worry as well. A Chinese invasion of Taiwan, for example, would almost certainly pull the United States into an armed conflict. The potential for World War III is certainly present, and global leadership will have to tread carefully to avoid it.
The many unknowns surrounding monetary policy and global conflicts are likely to keep demand for gold robust in the months ahead. As we get deeper into July, however, price action may become increasingly sideways with little to no sustained movement in either direction. In the meantime, the bears remain in control of the market which has been trending lower for several weeks now. The bulls need to produce a close above resistance at the $1,950 level to attract more interest and take advantage of the momentum.