Gold price falls on hot US inflation — $3,500 target still in sight, here's why

Economic Times

13 hours ago

TIMESOFINDIA.COM Gold fell after U.S. inflation came in hotter than expected, dimming hopes for a big Fed rate cut. July's Producer Price Index jumped 3.3% versus the 2.5% forecast, while jobless claims dropped to 224,000. The stronger data lifted the dollar and Treasury yields, pushing gold to around $3,341 an ounce for a weekly loss of 1.5%. Still, analysts believe the yellow metal could reach $3,500 soon.
Gold price slid after July's U.S. Producer Price Index jumped 3.3% year-on-year — well above forecasts of 2.5% — fanning fears of stubborn inflation and dousing hopes for a larger Federal Reserve rate cut. Weekly jobless claims also surprised on the downside at 224,000 versus 228,000 expected, lifting the dollar and Treasury yields. Spot gold now trades near $3,341 an ounce, down 1.5% for the week, yet many analysts still see the yellow metal climbing to $3,500 as rate cuts and safe-haven demand eventually return.
The catalyst came on Thursday when the U.S. Producer Price Index (PPI) for July showed a 3.3% year-on-year increase, smashing through the 2.5% forecast. Core PPI, which strips out volatile food and energy prices, also came in firm at 2.9%, according to the U.S. Labor Department. To put that into perspective: PPI measures the prices businesses pay for goods and services. When that number jumps, it often signals more inflation is heading toward consumers — meaning the Fed has less reason to slash interest rates aggressively.
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Gold traders, who had been betting on a 50 basis-point cut in September, have quickly scaled back those wagers. CME FedWatch now prices the odds of such a large cut at just 24%, with most market participants expecting 25 bps. The inflation shock wasn't the only blow. Weekly jobless claims fell to 224,000, lower than economists' expectations of 235,000. A resilient labor market reinforces the Fed's view that the economy can handle higher borrowing costs for longer — again, bad news for gold in the short term. As Commerzbank analyst Daniel Briesemann noted Friday, 'A smaller rate cut means higher real yields, which is generally negative for gold.' This week's combination of hotter inflation and solid employment data pushed U.S. 10-year Treasury yields up to 4.27%, their highest level in over a month. Thursday, Aug. 14 – Spot gold fell 0.5% to $3,337.21/oz , while December futures slipped 0.7% to $3,345.50. The dollar strengthened, and Treasury yields climbed, pulling funds away from the precious metals market.
– Spot gold fell , while December futures slipped to $3,345.50. The dollar strengthened, and Treasury yields climbed, pulling funds away from the precious metals market. Friday, Aug. 15 – Prices clawed back 0.2%, helped by a slight dip in the dollar index, but the weekly chart still pointed south. Silver edged up 0.1%, platinum gained 0.5%, and palladium dipped 0.2%. Gold thrives in low-yield environments. Higher interest rates (or even the perception they will remain higher) boost the appeal of interest-bearing assets like bonds at gold's expense.
What's different about this week is the scale of the repricing in expectations. A week ago, a supersized Fed cut looked possible. Today, the market is leaning toward a smaller, more cautious move — which could delay any major rally in gold until late 2025 or early 2026.
Kirill Kirilenko of CRU Group still sees gold retesting its $3,500 record high by early next year, citing continued geopolitical risks and central bank demand. 'The fundamental drivers remain intact. This is a setback, not a trend reversal,' he said. Near term: Expect more volatility, especially ahead of next week's U.S. Consumer Price Index (CPI) report. If CPI echoes the PPI's heat, gold could test the $3,300 support level.
Long term: Central banks remain net buyers — the World Gold Council reported over 120 tonnes added in Q2 2025 — and real rates are unlikely to stay elevated indefinitely. The next sustained leg higher for gold may come once inflation cools without crushing growth. For anyone searching 'Why is gold price falling today?' or 'Will gold recover in 2025?', the answer is clear: short-term weakness is being driven by unexpectedly strong U.S. inflation and job data, which reduces the urgency for the Fed to cut rates. But the structural drivers — central bank buying, geopolitical tension, and inflation uncertainty — still point to higher prices over the next 6–12 months. Q1: Why are gold prices falling this week? Gold prices are down due to stronger US inflation and reduced expectations for a big Fed rate cut.
Q2: Will gold recover in 2025? Analysts expect gold could retest record highs in early 2026 if inflation cools.