After last week's US inflation data, investors will be focused on the US July retail sales data and the latest FOMC meeting minutes scheduled for release on Wednesday. In terms of impact, the upcoming data releases are known as "terrorist data" by market participants. The reason for this title is that the market tends to fluctuate significantly after the release of the data, especially the price of gold. Because the retail sales data often significantly impact the US stock market, investors use gold, a renowned safe-haven asset, as a hedge against the stock market volatility despite gold prices fluctuating sharply.
The market expects the latest US retail sales to increase by 0.1% month-on-month, a significant slowdown from the previous month’s 1% growth rate; core retail sales may record negative growth. However, core retail sales are closely related to the consumer spending component of gross domestic product (GDP), so the data is more likely to reflect the US economy's current state accurately.
If the retail sales figures show a softening in inflation-adjusted core retail sales, consumer spending may have slowed down or even slipped in the third quarter. However, as more US consumption shifts from goods to services, economists expect a modest increase in consumption rather than a contraction.
The retail sales data is an essential measure of the overall consumer spending in the United States. It is also one of the data points contributing a significant proportion of GDP in the United States. The retail sales data also reflects consumers' confidence in the country’s economic outlook. Therefore, weak retail sales data means that consumers are worried about the economic outlook, which is negative. As a result, the US GDP contracted again in the second quarter and may fall further in Q3, dragging down the US dollar, with the US stock market also under pressure.
Suppose the latest retail sales data is lower than expected and records negative growth. Investors will further adjust their bets on the Fed, raising interest rates by 75 basis points in September, especially after the US inflation cooled off significantly in July. The market is waiting for more economic data to measure the prospect of future interest rate hikes from the Fed.
Considering that the retail sales data unexpectedly recorded positive growth in June, boosting investors' optimism after the release. However, some investors are concerned that this week’s data will exceed expectations again. The market is apprehensive about how the gold price will react to the data.
After the retail sales data is released, the market will shift its focus to the guidelines set out in the latest Fed policy meeting minutes. The Fed raised interest rates by 75 basis points at its last meeting. The market hopes to glean more about the Fed’s plans and signals from the upcoming meeting minutes.
Suppose the Fed continues to show its determination to fight inflation in the latest minutes; regardless if the economy slows down further, it could still raise interest rates as planned. However, the new information that the minutes can reveal is expected to be limited, and it is unlikely that gold prices will find significant guidance from it.
Gold tested $1,800 last week but failed to break through. If this week's retail sales data show a slowdown, the price of gold will seek to rechallenge the $1,800 mark. If gold can break through, it will be regarded as a critical upside signal, which will help consolidate gold prices. The rebound will keep going; otherwise, watch out for a possible return to the $1780-1760 consolidation zone.