Gold Firm Above 1,500 After Retail Sales, Key Developments on the Watch

“We are winning, big time, against China.”

Hi FX Emperors, it is what U.S. President Donald Trump tweeted on Wednesday while talking about its abrupt suspension of the latest round of tariffs expected to take place on September 1 and China comments on retaliations if more tariffs are imposed.

He also said that the United States problem wasn’t China, but the Federal Reserve and “clueless” Fed Chairman Jay Powell as the “Fed raised too much and too fast.”

It all started in December when the Fed raised interest rates to 2.25% because the U.S. economy was doing very well and in a natural, and a clear academic move, America’s central bank decided to hike rates.

But then, Donald Trump was on its crusade against China and imposing tariffs. Then, global concerns were raised against a possible recession due to trade concerns. The world called for caution, but Trump moved further.

Now, an inversion of the 10-Y Treasury bond yield below the two years yields is signaling a recession. However, the market is also watching Atlanta’s GDPnow index, which is indicating a robust 3Q Gross Domestic Product in the US.

How can we deal with that? Easy, because the inversion is not a signal for an immediate recession, but a technical event that happens on average 22 months before a recession.

It worked in that way in the last 40 years. Is it a fact? No, but as traders, we usually take into account hints that suggest how assets will move in the future. So it is one of that.

Long story short, the market is flooded with risk aversion, and despite Trump is saying that he is doing well and it is somebody else’s fault, the market doesn’t believe in him.

Risk aversion is fueling safe haven assets such as gold and silver, and in another way, cryptocurrencies.

U.S. posts good retail sales data

Retail sales in the U.S. rose 0.7% in July, well above the 0.3% expected by market. However, the previous month got a revision from 0.4% to 0.3% increase. Ex Autos, retail sales rose 1.0% in July, above 0.3% expected by market.

Gold consolidates levels above 1,500

Gold is trading negative on Thursday as investors are waiting for more developments in the bond market, the trade war between China and the United States, and in the economic calendar front with U.S. Retail sales taking the headlines today.

On Wednesday, gold was unable to consolidate gains above 1,520, and the metal closed 1,516. On Tuesday, XAU/USD is trading at 1,512, 0.24% negative on the day. However, the unit remains 1.17% positive in the current week.

Technical conditions are losing bullish steam, so more consolidation is expected. In any case, the market is entirely focused on fundamental factors and concern about the health of the economy is what is moving the assets.

Benjamin Lu, analyst at Phillip Futures, believes that there is a potential pullback in the cards. “Gold’s bull run is going on for sometime, we are afraid in the short-term there might be some pullback, corrections and people locking in profits, which might create volatility in coming days.”

The 1,520 level now contains XAU/USD. Above there, multi-year highs at 1,535 is the next frontier. To the downside, the unit is consolidating levels above 1,500, which would be the first support that the metal needs to break. Below there, 1,480 is a crucial level, followed by 1,440-60.

Silver down after failing on 17.40

Silver turned negative on Thursday after jumping to test the 17.40 area but failed. XAG/USD was attempting an extension of the recovery from 16.60, but it was unable to maintain gains mostly due to market quietness ahead of critical developments.

Currently, silver is trading at 17.17, 0.20% negative on the day. The mentioned 17.40 level contains the upside. Above there, 17.60 is the level to watch.

To the downside, 16.80 is the level to watch as potential support. Then, 16.60 is critical support.