On Tuesday (August 11th), spot gold fluctuated higher, currently up more than 0.6%, trading around $4415 per ounce, after briefly hitting a new high since early June at $4435.20 per ounce earlier, poised for a third consecutive day of gains. Last Friday's weak US non-farm payrolls report—which showed a loss of approximately 23,000 jobs in July, with the unemployment rate slightly dropping from 4.2% to 4.1%—prompted a significant downward revision of market expectations for a Fed rate hike next month.
The decline in rate expectations provided crucial support for gold. Market focus has shifted to key US inflation data scheduled for release this week—the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday—which will be decisive for the short-term direction of gold prices.
Weak Payrolls Reshape Rate Hike Expectations
The US non-farm payrolls report for July, released last Friday, showed the economy losing approximately 23,000 jobs, significantly worse than market expectations, even though the unemployment rate slightly declined from 4.2% to 4.1%. This data caused the previously more confident bets on rate hikes to recede substantially, clearly shaking market confidence in the Fed's further tightening policy.
Notably, while the Fed kept rates unchanged at its July meeting, three officials publicly dissented in favor of a rate hike, clearly indicating that the internal debate on the policy stance within the central bank is far from over, and hawkish voices have not completely subsided.
Under the impact of the latest data, the market is currently pricing in only about a 50% probability of a 25-basis-point Fed rate hike in September, far lower than the elevated levels seen before the payrolls data release.
For gold, the marked decline in rate hike expectations directly lowers the opportunity cost of holding this zero-yield asset, thereby enhancing its relative appeal and providing additional room for support for gold prices.
Gold's Technical Moves and Driving Logic
Spot gold has risen approximately 3.5% from last week's lows, hitting a new two-month high. This rally has been entirely driven by the repricing of rate expectations—there has been no fundamental change in gold's own supply/demand dynamics or geopolitics. Rather, the market's assessment of the US monetary policy path is shifting from 'hawkish' towards 'neutral-to-dovish'.
Low-rate expectations are naturally favorable for gold. Since gold itself pays no interest, when the market anticipates lower or declining rates, the opportunity cost of holding this zero-yield asset decreases, and its relative attractiveness rises. It is this logic that has consistently supported the recent uptrend in gold over the past few trading sessions.
In other words, the current strength in gold prices is more a direct reflection of the revision in Fed policy expectations rather than a substantial improvement in gold's own fundamentals. If rate expectations shift hawkish again subsequently, the sustainability of this rally will also face a test.
Inflation Data: The Key Variable for Short-Term Direction
Market focus has turned to two key inflation data points scheduled for release this week—the CPI on Wednesday and the PPI on Thursday. These figures are crucial for positioning in gold:
Should inflation data come in higher than expected, it will quickly rekindle rate hike bets. A rebound in rate expectations would pressure the current rally in gold, possibly pushing prices back to test the $4300 support level.
Should inflation data be lower than expected or moderate, it would further reinforce expectations of rate cuts or unchanged rates, extending the current bullish logic and driving gold towards the $4500 target and even higher levels.
Outlook
Gold is currently at a critical juncture for directional decision. The rise in gold is essentially trading on a core judgment—that July's weak non-farm payrolls data signals a potential start of a pivot towards easing by the Fed. Whether this judgment holds will directly determine gold's next move.
The inflation data to be released this week will serve as a crucial litmus test for this logic. It will either confirm the policy pivot signal hinted at by the weak jobs data or completely reverse it. If inflation data is moderate, market expectations for the Fed to maintain or even shift towards an easing stance will be further strengthened, allowing gold to potentially extend its current rally and push towards levels above $4500.
Conversely, if inflation significantly exceeds expectations, rate hike expectations will rapidly reignite, and the support gained from the earlier decline in rate expectations will quickly dissipate, potentially subjecting gold prices to significant corrective pressure. Therefore, the short-term direction of gold is highly dependent on how this week's inflation data ultimately defines the monetary policy path.
Summary
Spot gold is poised for a third consecutive day of gains, having currently hit an over two-month high of $4435.20 per ounce. Last Friday's weak non-farm payrolls report reshaped market expectations for Fed rate hikes, providing key support for gold.
Although the Fed kept rates unchanged at its July meeting, internal divisions were evident, leaving the policy direction uncertain. This week's CPI and PPI data will become the key variable for verifying the sustainability of gold's rally—moderate inflation data will reinforce rate cut expectations, driving gold prices higher; data exceeding expectations could rekindle rate hike bets, limiting or reversing the current uptrend.
The short-term direction for gold depends on how inflation data influences the market's repricing of the Fed's policy path.
