Weak Chinese Data Drives Gold Lower

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A rally in the Dollar Index as well as weaker crude oil prices were not the only factors sinking gold in today’s action. Weaker-than-expected data out of China overnight also sunk the metals and may keep the bulls second-guessing their intentions. The world’s second-largest economy saw its exports decline by 14.5% in July, year-over-year, and that represents the steepest decline since the Covid period of February 2020. Imports were also lower-than-expected, declining by 12.4%. The lack of encouraging news from China may keep its central bank busy. More stimulus measures could be seen in China shortly.

 

Key inflation data is also set for release this week in both the U.S. and China. The Consumer Price Index and Producer Price Index are both set for release on Thursday and Friday of this week. The data sets are expected to show a slight uptick from the previous readings and could be market-moving if the uptick is enough. A miss in these data points could have a bullish impact on gold and stocks, as worries over price pressures may recede further if the data suggests it. Inflation has been a focal point for financial markets for some time now, and the Federal Reserve has hiked interest rates aggressively to combat it.

 

Inflation is likely to remain an area of focus regardless of what this week’s data may suggest. The Fed has, for now, appeared to reach a point at which it is comfortable maintaining rates rather than continuing to raise them. The Fed could elect to keep hiking, however, if the data suggests it is necessary. Gold, equities, and other markets may find themselves in a holding pattern until more is known about the central bank’s plans going forward. The end of summer is also approaching, and more investors may be taking last-minute getaways before the kids go back to school. This could lead to less-than-stellar price action in the weeks ahead.

 

The bears are in control of the daily chart currently. They will look to take out the June lows around $1,939 before gaining further momentum. The bulls still need to produce a close above the key $2,000 level. The market has exceeded this level on prior occasions but has yet to put together a sustainable move higher. A solid close above the $2,000 level could set the stage for the bulls to take the market higher. If able to sustain such a move, the bulls could even target previous all-time highs in a short period of time. They currently appear to be lacking a sufficient catalyst to take the metal higher, however and may need to wait until the summer is over before significant trading volumes return. That could make the next several weeks a bit more interesting as either the bulls or the bears lay a possible foundation for what may be to come once the fall gets underway.

Gold Lower As Outside Markets Weigh

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The gold market is solidly lower in mid-afternoon trade on Tuesday. Amid the lack of fresh market inputs, investors are focusing their attention today on the key outside markets. Unfortunately for the bulls, all of these markets are in a bearish posture for gold today. The dollar is higher, crude oil is weaker and treasury yields are also higher. The benchmark ten-year note yield surpassed the key 4% level in today’s action and could see an ongoing run higher.

 

As the key outside markets fail to cooperate today, investors will also turn their attention to potentially major market factors. The Federal Reserve and its plans for interest rates have to be at the top of the list. Although the Fed has recently signaled it may now take a wait-and-see approach before hiking rates any further, stronger-than-expected data may keep the Fed moving the needle higher. Rates are having a bearish effect on inflation, which is good, although price pressures remain stubbornly above the Fed’s desired target of 2% annually. The markets are now awaiting the key data point of the week which is Friday’s non-farm payrolls figures for July.

 

The jobs data at the end of the week is expected to show a gain of 200,000 jobs. This would be a slight dip from the 209,000 jobs gained in the report for June. Should the figure come out in line with expectations, it is unlikely to sway any minds about the Fed’s plans. Should the figure see a large miss or beat, however, markets may take notice and get on the move as expectations for further rate hikes mount. A growing expectation of further action from the Fed could hurt gold, stocks, and other markets. The threat of an ongoing hawkish Fed may be enough to prevent gold from surpassing the $2,000 per ounce level. A failure to overtake this level, and soon, may give the bears the signal to move in and take over. This could, therefore, cause a reversal in gold’s fortune and could even reverse the metal’s trend from higher to lower.

 

The slight technical advantage that the gold bulls had is no longer present. The metal is on even fitting right now, and today’s sell-off may even give the bears the ammunition they need to drive prices lower. If the bears can test the $1,900 level in the weeks ahead, a major technical reversal could be seen. A failure by market bulls to maintain trade above $1,900 could lead to an even larger decline in the market that could see prices as low as $1,800 per ounce before finding more solid footing. A reversal higher from this level, on the other hand, could be indicative of a market that has underlying strength and could quickly rebound back near the $2,000 level. The next few weeks, as summer winds down, may prove to be boring and present little opportunity for the bulls or bears if prices move mostly sideways.