GoldPrice.

Good morning, traders; welcome to our market week preview, where we take a look at the economic data, market news and headlines likely to have the biggest impact on the price of gold this week and beyond, as well as other key correlated assets.

Gold prices are slightly softened, but still appear to have consolidated support around $1740/oz as the trading week—the first full five-day run we’ll have seen since late June—gets started.

While gold spot prices are looking much more stable than they were at the start of last week’s trading (on Tuesday,) the yellow metal is unlikely to find much headroom for a rebound or rally with the USD continuing its super-charged bull run as the Dollar Index ticks above 108 this morning. Ahead we’ll talk about which data points this week could, or likely could not bring about a Dollar reversal and a little more breathing room for gold.

For now, let’s take a look at the rest of the calendar ahead.

US Economic Data to Watch

Wednesday, July 13 at 830am EDT // CPI Inflation (June)

[(core CPI) consensus est.: +5.7% YoY // prev.: +6.0%]

[((headline CPI) consensus est.: +8.8% YoY // prev.: +8.6%]

We’ve come to a point in the cycle (feels like we’ve been here for a bit, really) where there are so many possible combinations of data and signals that could come out of a full CPI report—between “core” and the all-in headline numbers, between annualized views and the month-over-month change—that it’s only an efficient use to of space to talk about how markets might react to an as-expected print or at least something within touching distance. Even staying on those narrow rails, anticipating the gold market’s reaction feels like a coin flip. The expected data set would show that the year-over-year rate of less-volatile “core” inflation (ex. food and energy costs) cooled notably since the May reading. On the other hand, driven primarily by eye-watering gas prices and bigger restaurant tabs, the overall read on inflation in the US will accelerate—albeit very slightly—both on a YoY view and month-to-month. 

While some are worried about a rerun of the stop-go tightening from the 1970s, others fret about the Fed hiking in large chunks while watching a lagging indicator.

“If that kind of reaction function is maintained, it practically guarantees overshooting.” https://t.co/LDg97DGzac

— Nick Timiraos (@NickTimiraos) July 10, 2022

The uncertainly around the market reaction, for gold and investments, whether weighted for safety or yield/risk, comes from uncertainty around how this data will be reported on and digested: A focus on the declining core inflation rate would play into the theme of deflationary hopes that dominated last week, and could bring more downward pressure on gold as it would present actual data to support lower projected inflation. If investors’ attention is drawn towards a bump higher in headline inflation, that could bring last week’s optimism crashing back to the ground (even with the context that such a rise is driven by the most volatile components of the inflation data). The case for this destabilizing signal boosting gold prices higher (a reverse of the effect a core CPI-focused narrative would have) is murkier, given that it likely drives the US Dollar (even) higher (still,) on expectations of more Fed tightening at the current clip (or faster.) As is becoming the monthly refrain: a gold trader can do a lot of their good work this week simply by being prepared for volatility in the market around the CPI release on Wednesday, without placing a great deal of risk on directional plays.

Friday, July 15 at 830am EDT // Retail Sales (June)

[consensus est.: +0.9% MoM // prev.: -0.3%]

Mostly in reaction to the unwelcome dip in growth that May’s numbers reported, the “improved” data for Retail Sales due Friday should be welcomed by investors and economists as another point to the case for at least the minimum viable level of economic growth being sustained as the Fed battles inflation pressures. If the mid-week CPI report hasn’t’ turned the market on its head by producing bad news, Friday’s retail numbers can be expected to drive similar moves to what we saw last week: optimistic buying in risk markets, a steady (if not rising) USD, and more strong headwinds resisting any big recovery for gold prices this week.

FedSpeak this Week

It appears that once again we’re starting another week with the US Dollar going full-tilt, and the burn that creates is removing all of the oxygen from the room for gold (and at least a few other assets.) There are not a lot of clear opportunities this week for the Greenback rally to reverse course—a positive result from the mid-week CPI data might net out to being Dollar positive as a growth play. But if we were to get more dovish signaling from key FOMC members, up to and including some indication that last week’s shift in sentiment to favor “inflation has peaked” has crossed over to the Fed as well and so the appetite for aggressive hiking into the autumn could wane, that call could slow the Dollar down from this surge that is driven in large part of expectations for higher rates.

Tuesday: Richmond Fed President Thomas Barkin (non-voter) (1230pm EDT)

Thursday: Federal Reserve Governor Christopher Waller (FOMC voter) (11am)

Friday: Atlanta Fed President Raphael Bostic (non-voter) (845am); St Louis Fed President James Bullard (FOMC voter) (9am)

And that’s how the week lays out ahead of us, traders. As always, I wish you all the very best of luck in your markets in the coming days, and I’ll look forward to seeing you all back here on Friday for our market-week wrap-up.