Gold Price Forecast: Cooling CPI Weakens Fed Rate Hike Expectations, Can PPI Push Gold Above $4,500?

Data show that the U.S. CPI rose 0.1% month-over-month in July, matching market expectations, and increased 3.4% year-over-year, slowing further from 3.5% in June. Core CPI excluding food and energy fell 0.2% month-over-month and rose 2.5% year-over-year, also cooling from previous levels. Gasoline prices fell month-over-month.

The U.S. CPI rose 0.1% month-over-month in July, matching market expectations and rebounding significantly from a 0.4% decline in June; year-over-year, it increased 3.4%, slowing further from 3.5% in June. Core CPI excluding food and energy rose 0.2% month-over-month and 2.5% year-over-year, also cooling from prior levels. Gasoline prices dropped 2.9% month-over-month, while prices for hotels, prescription drugs, and food also fell, offsetting pressure from increases in categories such as shelter.

Although headline inflation of 3.4% remains significantly higher than the Federal Reserve's 2% target, the data did not show a reacceleration of inflation that the market had previously feared. Combined with the unexpected drop in U.S. nonfarm payrolls for July, the Fed currently faces an environment of a cooling labor market and slowly easing inflation, reducing the necessity for further rate hikes.

However, the CPI has not completely eliminated the interest rate risks facing gold. Core inflation remains above the Federal Reserve's target, and recent tensions in the Middle East have kept energy prices elevated, leaving the Fed still concerned that rising oil prices could ultimately feed through to consumer prices again.

Next, market attention turns to the July PPI scheduled for release at 8:30 Eastern Time on August 13. According to data from the U.S. Bureau of Labor Statistics, the June PPI fell 0.3% month-over-month, the largest decline in over a year, and rose 5.5% year-over-year, with goods prices falling 1.4% while services prices rose 0.2%. The market currently expects the July PPI to rebound 0.2% month-over-month.

If tonight's PPI continues to come in below expectations, especially if core PPI also shows further reduction in corporate cost pressures, it will reinforce the inflation cooling signal released by the CPI. The probability of a Fed rate hike in September may decline further, placing U.S. Treasury yields and the U.S. dollar under pressure, while gold could regain upward momentum and challenge $4,500.

Conversely, if the PPI comes in significantly higher than expected, signaling a resurgence in corporate cost pressures—particularly against the backdrop of recently sustained high energy prices—the market may worry about a future rebound in CPI. This could raise Fed rate hike expectations, prompting a rebound in Treasury yields and the U.S. dollar, and potentially driving gold back down toward $4,300.

Gold price daily chart, Source: TradingView

Looking at the daily chart of gold prices, gold has recently continued to rebound from near $4,000, successively breaking above the $4,200, $4,300, and $4,400 marks, with the short-term price center steadily shifting upward. Gold prices climbed again today, touching near $4,450 intraday before pulling back, indicating some resistance around $4,450.

Currently, $4,400 has become a key short-term battleground for bulls and bears. If today's PPI comes in lower than expected and pushes gold prices to hold firmly above $4,400, gold may continue to test the resistance at $4,450. If gold breaks and holds above $4,450, it could further test the $4,500 mark to the upside, with the $4,600 level to watch beyond that.

To the downside, the primary support level for gold to watch is $4,360. If this level fails to hold, gold prices could further test the $4,300 mark, with the $4,220 support level to watch further below.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.