Gold Price Forecast: Gold Rises as Nonfarm Payrolls Unexpectedly Turn Negative; Can CPI and PPI Help Break $4,500?

TradingKey - As of the Asian session on August 10, gold prices ( XAUUS D) extended last week's trend into this week after a sharp rise last week, with the latest gold price trading near $4,345, up slightly by about 0.2% on the day. Last week's weak U.S. July non-farm payrolls report pushed gold prices to a seven-week high, and gold is currently still trading stably above $4,300. This week, market focus shifts to the upcoming CPI and PPI, and these two inflation reports will further determine whether the Federal Reserve will raise interest rates in September, serving as an important catalyst for gold's next directional move.

Gold Bulls Await CPI, PPI Confirmation After Nonfarm Payrolls Unexpectedly Turn Negative

The latest US non-farm payrolls data for July was significantly weaker than market expectations. US non-farm payrolls decreased by 23,000 in July, which was not only far below the 80,000 increase previously expected by the market, but also marked the first negative payroll growth in recent months. Meanwhile, the payrolls data for May and June were revised down by a combined 103,000, with June's job growth sharply revised down from the previously reported 57,000 to 20,000, indicating that the US labor market may actually be cooling faster than previous data suggested.

Although the unemployment rate in July fell to 4.1% from 4.2%, this does not fully represent an improvement in the job market. Data showed that the US labor force decreased by 264,000 in the month, and the labor force participation rate fell further to 61.4%, close to a five-and-a-half-year low. Meanwhile, the year-on-year growth rate of average hourly earnings slowed to 3.2%, further reflecting weakening demand in the labor market.

Following the release of the non-farm payrolls report, the market quickly scaled back bets on a September rate hike by the Federal Reserve. The market had previously estimated the probability of a September rate hike to be over 50%, but it has now dropped to 43.9%. The US dollar and US Treasury yields weakened accordingly, providing significant support for non-yielding gold, which is also an important reason why gold prices reclaimed the $4,300 mark.

Federal Reserve interest rate expectations, Source: CME Group

However, the weak payrolls data is not enough to completely rule out a September rate hike. The CPI and PPI data to be released this week will be crucial for the Fed's next policy judgment. The US July CPI will be released on August 12, with a Reuters poll forecasting headline CPI to rise 3.4% year-on-year, down from 3.5% in June; year-on-year core CPI is expected to drop from 2.6% to 2.5%. Meanwhile, the market expects core CPI to rise 0.2% month-on-month.

If CPI comes in below expectations, especially if core inflation continues to cool significantly, the probability of a September rate hike by the Fed may continue to decline, the US dollar and US Treasury yields are expected to fall back further, and gold could seize the opportunity to break through recent highs. Citi believes that if the US releases weaker inflation data again, the likelihood of a September rate hike may drop significantly; however, Bank of America warns that if core services prices reaccelerate, the Fed could still keep the rate hike option on the table.

Subsequently, the US will release July PPI on August 13. June PPI fell 0.3% month-on-month, marking the largest decline in 14 months, while its year-on-year growth rate also fell to 5.5% from 6.0%, indicating that upstream price pressures have begun to ease. The market currently expects July PPI to rise slightly by about 0.1% month-on-month, with core PPI expected to rise 0.2% month-on-month.

Gold Price Technical Analysis

Gold price daily chart, Source: TradingView

Looking at the daily chart, gold prices have continued to rebound recently, even surging past $4,300 last week, which indicates that short-term bullish market sentiment is dominant. However, gold prices rose to just below $4,380 last week but failed to break through this level effectively, dampening short-term bullish momentum as prices maintain a weak upward trend today.

Currently, the key resistance level to watch on the upside is $4,380. If gold can effectively break through and consolidate above $4,380, it will open up room for further gains toward $4,500, with the next target near $4,600.

Conversely, if gold prices face resistance and pull back below $4,380, they may enter a correction phase. The primary target for a pullback would be the $4,300 mark. If this level is lost, gold prices could slide further toward the support level near $4,223.