Inflation Data Keeps Gold Steady as Fed Rate Cut Bets Hold
Here's what you need to know:
Gold hovered near $3335/oz as markets priced in a likely Fed rate cut this fall.
July's CPI came in slightly below expectations, keeping optimism for easing alive.
PPI surprised to the upside at +0.9%, but markets shrugged off inflation fears—so far.
All eyes now turn to Powell's Jackson Hole speech for clues on upcoming policy moves.
So, What Kind of a Week Has it Been?
Price inflation in the US economy was the dominant theme for the markets in general this week, and for gold trading, it has been no exception. With investors, traders, and money managers across the globe primed for the Federal Reserve to just about finally announce the first (of 2-3 projected) interest rate cut of 2025, updated inflation reporting draws a great deal of focus this week.
Following on from a deeply disappointing July Jobs Report—which signaled the US economy may be faltering under the pressure of higher interest rates and accordingly tight financial conditions—markets and Fed watchers across the world were looking for inflation pressures to appear mild (if not moderating) enough to further encourage the FOMC to lower policy rates and widen the flow of money.
Inflation Reports Send Mixed Signals
Markets would certainly have preferred to see US inflation come in cooler than expected, or at least lower than the previous month's pace this week, to make a strong argument for the FOMC to judge conditions as ready for a rate cut.
Neither Tuesday's Consumer Price Index nor Thursday's Producer Price Index delivered on that hope, but at the same time, neither blew up that optimistic projection entirely. (In fact, risk appetite seems to be up on net at the end of the week.)
July's CPI numbers were the most accommodating—helpful, given it's the data set that draws the greater attention by far. While 'core inflation' crept higher on both a monthly and annualized basis, traders were comfortable assessing it as within normal range and not a signal of re-heating price pressures. The headline inflation rate came in slightly below expectations.
Although the numbers were far from what we would assume could get the Fed to rush to lower rates, the central bank has implied that the call to hold off is based on a risk of inflation climbing again later—after the full suite of Trump Tariffs really take effect—and not a great level of discomfort with where inflation is currently (roughly +3% YoY).
PPI Surprise Fails to Derail Fed Cut Hopes
The Producer Price Index output for the same month, printed on Thursday morning, was less supportive of projecting interest rate cuts. The headline number showed PPI—the cost of raw materials used to produce goods—coming well above expectations at a month-over-month rate of +0.9%.
The implication here, presumably, is that producers are already facing higher prices as firms around the world attempt to protect themselves from headlines created by the US's broad and severe application of tariffs.
Although this should imply a considerable risk of higher consumer inflation in the medium term once producers pass these higher prices on to consumers, the report has mostly been met with a shrug across US trading. Perhaps the view is that this projection risks the opportunity for the Fed to cut rates again in early 2026, but not their appetite to lower rates to levels projected for the end of this year.
Gold Market Reaction: Steady Support, No Breakout
We have seen both of these reactions borne out in the gold spot market this week. After the yellow metal shed some value at the start of the week, falling to $3330/oz in early Tuesday trading as investors shifted ahead of the CPI release, support has been consistent at that level, with gold still finding eager buyers.
At the same time, there has been no notable attempt to push the precious metal's price back towards $3400. Trading on Tuesday held gold relatively flat, implying that July CPI makes the case for a cut by the end of September, yes—but that this projection is fully priced in.
The immediate market reaction to the upside surprise in producer prices was generally tepid as well, suggesting that investors don't expect the data set to scuttle expectations for at least one Q3 cut.
As a result, gold looks set to close the week at $3335/oz in the spot market, more or less level with Tuesday's close.
Looking Ahead: Jackson Hole and the Fed's Next Moves
For better or worse, we don't have to get much closer to the September FOMC meeting to see if these estimations of how the Federal Reserve decision makers are digesting inflation metrics are correct.
With the Kansas City Fed's annual Jackson Hole Symposium kicking off on Friday with the usual keynote address from the Chair of the Fed, we can expect Jerome Powell & Company to send meaningful signals about how they expect inflation pressures, among other key macroeconomic inputs, to influence monetary policy for the next 3 to 6 months.
In the meantime, traders, I hope you can get out and safely enjoy your weekend for the next couple of days. After that, I'll see you back here next week for another market recap.
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