By mid-August, the future of the global economy was no longer as bright as it had been after the strong US labor market report. This revived investor interest in gold, which managed to almost completely lick the wounds inflicted by robust US employment statistics. The spread of the delta variant across the globe, natural disasters, alarming news from Afghanistan, and disappointing data on the economies of China and the United States dropped the yield on US Treasuries, which allowed the bulls on XAU/USD to quickly recover.
The unfortunate statistics on consumer confidence from the University of Michigan, which fell to its lowest level since 2011, was the first sign. Furthermore, weak data on retail trade, industrial production, and investment in fixed assets in China were replaced by an unpleasant surprise from the US retail trade. The indicator fell by 1.1 MoM in July, after which banks began to cut their forecasts for US GDP for the third quarter. Bloomberg experts expect that consumer spending in July-September will slow down from 11.2% to 4.5%, which will slow the pace of economic growth.
If two such pillars as China and the United States begin to feel unwell, it's time to increase the share of reliable assets in investment portfolios. In this respect, the return of interest to the precious metal looks logical. Both Chinese and Americans are scared by the delta variant of the COVID-19. And there are alarming signals from the United States about the increase in hospitalizations.
Trends in mortality and hospitalizations in the United States and Britain
The growing demand for US Treasury yields has historically supported gold. Falling debt rates and a weak dollar create an ideal environment for it. The situation is exacerbated by a decrease in the Treasury's demand for debt issuance, which could lead to a supply crisis and further decline in profitability. In such a situation, even the collapse of the American QE should not scare the fans of the precious metal.
And yet, in my opinion, the situation is not as sad as the mass media are trying to present us. The slowdown in US retail sales in July is nothing more than a rebound after an impressive June. Industrial production in the United States demonstrates the best dynamics over the past 4 months, and the rise in rental prices increases the risks that high inflation in the United States is a long-term factor. The American economy is strong, the labor market continues to recover, and further acceleration in consumer prices is fraught with a faster normalization of the Fed's monetary policy than the markets currently expect.
In such conditions, the US dollar feels like a fish out of water, which against the background of stabilization of Treasury bond yields can play a cruel joke with the bulls on XAU/USD. The reason for the sale may be the "hawkish" signals from the Fed, contained in the minutes of the July meeting of the FOMC.
Technically, despite the recent success of the gold bulls, while its quotes are below the fair value of the third quarter, located near $1,806 per ounce, the situation continues to be controlled by the bears. At the same time, the fall of the precious metal below $1,775 and $1,765 is a reason for its sales.
Gold, Daily chart
