The gold market is under some pressure in early action Friday following more weakness in Chinese economic data overnight. Hong Kong stocks declined by over 2% as growing concerns over a slowdown hit equities hard.
What Did the Data Say?
Overnight Chinese economic data included the latest readings on industrial output and retail sales, both of which fell short of consensus estimates. According to an article from marketwatch.com, industrial output for the month of November rose by 5.4% from a year earlier. This was a decline from October’s reading of a 5.9% rise year-over-year in October. Retail sales reportedly rose by 8.1% in November from the previous year, below estimates of an 8.8% rise. The November figure was also lower than the October reading of 8.6% year-over-year.
A Global Slowdown
Recent pockets of weakness coming out of China have fueled fears over a global slowdown. As the world’s second largest economy, global markets have relied heavily upon Chinese growth in recent years and any significant weakness in the nation could potentially spill over into other markets. The effects of the ongoing trade war with the U.S. certainly seem to be having an effect on China, and any further weakness could send Chinese authorities into action in order to boost the economy.
Ongoing weakness in China comes at a time when the U.S. may also be showing some symptoms of a slowing economy. The Fed has already taken a significantly more dovish tone in recent commentary, and while the central bank is likely to hike rates once more before the end of the year, further hikes next year have come into question. The notion of a global slowdown and even the possibility of recession have been a major factor in recent equity market declines and volatility.
The gold market is under some moderate pressure in early trade as both the Chinese economic data and a stronger dollar take a toll on sentiment. As a major consumer of commodities, any weakness in China has the potential to hit this sector particularly hard, and even gold is not immune to the potential effects of slower Chinese growth. The gold market has backed off a recent run into resistance at the October highs around the $1252 area, although it is not likely to fall much further. The threat of further weakness in China and a global slowdown could keep the metal well-supported in the weeks and months ahead. An increasingly dovish Fed may also keep a floor under prices as well.