The highly anticipated July US CPI, retail sales, and the latest jobless claims didn’t steer gold into a definitive trend, with prices still consolidating above $2,430.
In my view, unless there’s a substantial shift in market expectations, gold is likely to continue its choppy move between $2,430 and $2,350, with $2,430 providing some minor support.
As the extreme fear of a US recession has calmed, fundamentals are once again driving gold trading. However, recent economic data haven’t altered the market’s pricing of the Fed’s rate cut trajectory.
While both the US PPI and CPI have shown signs of cooling, and the three-month annualized core CPI has dropped from 2.1% to 1.6%, reaching the Fed’s 2% inflation target, I believe this merely confirms the rationale for a September rate cut, without justifying a more aggressive 50 basis point reduction.
Similarly, stronger-than-expected July retail sales and a drop in jobless claims, to me, suggest a resilient economy rather than a signal to delay rate cuts.
Given that the consensus around a 25 basis point rate cut in September remains unshaken and last week’s volatility has normalized, I think gold prices have already priced in this expectation. As a result, even though top-tier data has been released, it hasn’t delivered any significant blow to gold prices.
Overall, while the bullish narrative for gold is clear—anticipation of Fed rate cuts, increased geopolitical risk from the U.S. election, and heightened Middle East tensions—there’s a lack of a key catalyst.
Now that inflation is no longer in the spotlight, with the market turning its gaze to the labor market, I see only two potential surprises before the September Fed meeting: a sudden deterioration in U.S. labor market conditions or a resumption of gold purchases by the PBOC. However, given the current high cost of gold and the relatively strong performance of the RMB against the dollar since August, I believe the latter scenario is less likely in the near term.
In my opinion, the most significant risk to gold’s performance lies in the U.S. nonfarm payroll data due on September 6th. If job growth falls below 100k and the unemployment rate stays above 4.1%, recession fears could rise like a storm cloud on the horizon, potentially pushing gold towards $2,500.
