According to economic calendar data, U.S. consumer inflation in July dropped to 2.9%, below market expectations of 3%. The core index also fell to 3.2%, the lowest level in more than three years. However, high inflation in housing and transportation services reduced market expectations for a Fed rate cut in September, curbing further increases in gold prices.
Meanwhile, the ongoing conflict between Israel and its neighbors in Gaza and Lebanon continues to pose geopolitical risks to financial markets, providing support for gold and other safe-haven assets.
Other factors influencing the gold market include a weaker dollar, with the Dollar Index falling to 102.2, reaching its lowest point since mid-January. This is due to the U.S. Consumer Price Index (CPI) report meeting expectations and showing a mild decline in inflation. Although both core CPI and overall CPI data met expectations, the annual growth rate unexpectedly fell to 2.9%, the lowest since March 2021. The Producer Price Index (PPI) for July increased by 0.1% month-on-month, lower than the expected 0.2%, and the core PPI remained unexpectedly flat.
Overall, the market broadly anticipates a Fed rate cut in September, with a roughly 46% likelihood of a 50 basis points reduction.
Another factor affecting the gold market is the near one-year low U.S. 10-year Treasury yield. On Wednesday, the 10-year Treasury yield fell to around 3.8%, close to its one-year low. The market is assessing the latest inflation data and its impact on credit costs. U.S. consumer inflation for July declined to 2.9%, below the expected 3%, and the core index also fell to 3.2%.
Gold Price Outlook and Analysis
Gold prices are expected to remain near historic highs as weak U.S. inflation data bolsters market expectations for a more significant Fed rate cut in September. Additionally, heightened geopolitical tensions emphasize gold's safe-haven attributes, with the market closely monitoring potential retaliatory strikes by Iran on Israel and the further development of the Ukraine-Russia conflict.
This year, gold prices have risen nearly 20%. In addition to rate cut expectations, strong gold purchasing demand from central banks and robust demand from Chinese consumers have supported gold prices. Moreover, escalating Middle East tensions have further enhanced gold's attractiveness as a safe-haven asset. Simultaneously, data from the U.S. Commodity Futures Trading Commission shows that net long positions by fund managers in gold have dropped to a five-week low.
As of 20:41 Beijing time, spot gold was reported at $2,451.87 per ounce, an increase of 0.17%.
