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Gold could drop to $1,765

Gold prices have been in decline on Monday, although during the first half of the day the precious metal attempted to consolidate around the $1,775/oz mark.

On the one hand, risk aversion has prevented gold prices from sinking too sharply. The dollar is no longer as expensive as it was a week ago, and this bodes well for precious metal prices. On the other hand, lackluster macro data came out of China today, and this hardly builds the investment case for gold.

Industrial production in China in June grew by only 6.4% YoY, down from the previous 8.3%. Retail sales for the same period rose by 8.5%, while in May this metric grew by 12.1% YoY. The unemployment rate rose to 5.1% after 5.0% in the previous month.

China has been actively buying up gold - both as reserves, in the interests of industry, and in line with physical demand. The deterioration in key macro data points could send a signal to the gold market about a further decline in buying parameters.

In the short term, gold may correct in the region of $1,765-1,770/oz, after which it will reverse to the upside, with a target of $1,785.

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