Gold Price Forecast: PPI and Oil Prices Fuel Inflation Concerns, Can CPI Change Gold's Direction?

From a fundamental perspective, the main reasons for Thursday's sharp decline in gold prices were the higher-than-expected August PPI data and a surge in oil prices caused by deteriorating conditions in the Middle East.

Data from the U.S. Department of Labor showed that the final demand PPI rose 0.4% month-over-month in August, matching market expectations but notably higher than the revised 0.1% in July. The year-over-year rate accelerated from 4.8% in July to 5.4%, slightly above the market expectation of 5.3%.

By component, the rise in producer prices in August was not driven entirely by a single item. Energy prices jumped 4.2% month-over-month, with diesel and jet fuel costs rising significantly, while airfares, hospital outpatient, and inpatient service prices also climbed. Certain service components feed into the PCE inflation measure closely watched by the Federal Reserve; thus, although yesterday's PPI met month-over-month expectations, the report's internal details still revealed underlying price pressures.

Following the PPI release, the probability priced in by interest rate futures for a 25-basis-point rate hike by the Fed in September rose to around 70%, up from about 62% prior to the data. The U.S. Dollar Index gained 0.3% on Thursday, holding near 99.08 during Asian trading hours on September 11, while the 10-year U.S. Treasury yield remained close to 5%. As a non-yielding asset, gold typically faces higher relative holding costs during periods of rising bond yields.

Meanwhile, the worsening situation in the Middle East drove a sharp surge in oil prices, further heightening market focus on the inflation outlook. Houthi forces seized control of the Port of Mokha in Yemen, escalating shipping risks near the Red Sea and the Bab-el-Mandeb Strait. On Thursday, Brent crude surged over 7% to close at $109.30, while WTI crude rose to $103.94, with both benchmark oil prices breaking back above $100. The surge in oil prices sparked market concerns over U.S. inflation expectations, which in turn weighed on gold prices.

For investors, the key focus is the U.S. August CPI scheduled for release today. The market expects headline CPI to rise 0.4% month-over-month in August, up from 0.1% in July, while the year-over-year rate is expected to remain at 3.4%. Core CPI is projected to increase 0.2% month-over-month, with the year-over-year figure expected to ease from 2.5% to 2.4%.

If headline CPI accelerates due to higher energy prices while core CPI remains at 0.2% and continues to decline year-over-year, the Fed's assessment of underlying inflation may not shift by a corresponding magnitude. However, if core CPI also comes in significantly higher than expected, it would provide evidence of broader price pressures.

Therefore, following tonight's CPI release, close attention should be paid simultaneously to core CPI, U.S. Treasury yields, and the U.S. dollar. If core CPI exceeds the market expectation of 0.2%, market pricing for Fed rate hikes may remain elevated; if core CPI comes in below expectations, it could partially ease the inflation concerns triggered by yesterday's PPI and rising oil prices.

Gold Price Daily Chart, Source: TradingView

Looking at the daily chart of gold prices, after dropping sharply to near $4,300 on Thursday without breaking below it, gold prices neared $4,300 again at Friday's open but still held above it, maintaining an intraday rebound. This indicates that this level provides certain support, and bargain-hunting bulls may continue to accumulate near this position.

Currently, gold prices have retested $4,300 twice recently without breaking below it, indicating that a short-term bottom has formed at this level. If gold prices break below this level following today's CPI data release, it could open up deeper downside potential in the short term, potentially testing the $4,200 mark. If this level fails to hold, gold prices may further test the $4,000 mark.

Conversely, if gold's closing price today can hold firmly above $4,300, bullish momentum will be significantly strengthened, with the primary upside target testing the $4,510 resistance level. If it breaks through this level, gold prices will further test the $4,700 resistance level.

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