Equities Soar While Gold Retreats: Is the Tide Turning for Risk Assets?

Last Friday, we highlighted in our morning commentary the importance of moving into a "second-layer thinking" framework on the U.S. dollar. A turning point in the dollar—from depreciation to appreciation—could signal the exhaustion of tailwinds for risk assets. As the dollar strengthens in the second half of the year, we expect gold prices to continue their downward trajectory, primarily due to pressure on commodities from a stronger greenback.

Currently, risk assets are being heavily chased by capital. Investors are interpreting all news as good news—bad news isn't seen as bad, and good news is amplified as extremely bullish. In such an environment, it's crucial for investors to tune back into the macroeconomic narrative to determine whether we're approaching a turning point in market trends.

Real Personal Consumption Expenditures Tell a Subtle Story

Chart 1 – U.S. Real Personal Consumption Expenditures, May(Source: FRED)

Chart 1 breaks down U.S. real personal consumption expenditures (PCE) into goods and services. We've previously noted the cyclical relationship between these two categories—historically, when spending on goods outpaces services, risk assets tend to perform better.

Since November 2024, goods and services spending have alternated in leadership, but goods have consistently remained in the lead. This has supported continued strength in risk assets. In May, real goods spending stayed above services, indicating persistent upward momentum.

However, a closer look reveals a sharp downtrend from April to May:

• Real goods spending dropped to 2.95%

• Services spending stood at 1.78%

• Disposable personal income fell to 1.68%

Is this a sign that consumer demand is cooling？

Tariff-Driven Spending Distorted the Trend

The recent shift in goods consumption is largely due to a "tariff-driven buying spree" earlier in the year:

• March: Consumers rushed to buy vehicles to front-run potential tariffs, sending auto sales surging and driving a spike in overall retail numbers.

• April: The frenzy cooled, dragging down retail growth.

• May: As auto sales declined 3.5% month-over-month, overall retail sales fell 0.9%.

Despite this, Mays 2.95% growth in real goods spending remains solid—especially considering the drop in auto sales. This suggests a stabilization at a healthier pace of expansion.

Looking ahead to July, we anticipate one final boost in goods consumption driven by Amazon Prime Day, which could push risk assets to new highs. However, beyond that point, concerns over fading consumption momentum may resurface. Investors should remain alert—but not overly anxious.

Inventories Dragging Down GDP Forecasts

Chart 2 – Atlanta Fed GDPNow Estimate: Inventory Investment Contribution

(Source: Federal Reserve Bank of Atlanta)

The June 26 Personal Income and Outlays report triggered a sharp downward revision to inventory investment projections in the GDPNow model. The estimated contribution from inventories to Q2 GDP was cut from nearly zero to -2.22 percentage points.

This adjustment stemmed from BEAs revision of import data—particularly non-monetary gold and other precious metals—which impacted inventory estimates in both the manufacturing and wholesale sectors.

Why the steep drop？

Much of the inventory buildup in Q1 2025 was front-loaded, contributing positively to GDP at the time. But as inventories were rapidly drawn down in Q2 without a matching restocking cycle, the contribution turned negative. This reflects a seasonal mismatch caused by front-loaded stocking and overspent consumer demand.

In short, previous inventory strength came at the expense of future restocking capacity. Should retail sales weaken further, the Fed may step in with policy adjustments to support the real economy.

While a Q3 correction appears increasingly likely, we believe any pullback will be healthy and manageable from a long-term investment perspective.

Gold Technical Analysis

Gold has declined from $3,451 to $3,247, a 200-point drop. After testing support at $3,247, prices rebounded during the Asian session, signaling a possible short-term bottom.

Trading Outlook:

• The first half of this week may offer a window for a technical rebound.

• Investors who missed the downtrend may find an opportunity to short on the bounce.

Stop-loss guidance: $20–30 range.

Support: $3,247

Resistance: $3,286 / $3,325

Risk Disclaimer:

The views, analysis, research, price levels, and other information presented herein are for general market commentary only and do not represent the official stance of our platform. All readers are solely responsible for their own trading decisions. Please trade with caution.