Gold price rises as US producer inflation softens, easing rate expectations
- Gold price rises as US producer inflation softens, rate expectations ease.
- Fed Independence remains in focus as President Trump seeks a replacement for Fed Powell.
- XAU/USD remains range-bound below $3,375 with $3,400 in focus.
Gold price action is reacting to another critical US inflation report on Wednesday as price action remains sensitive to shifting interest rate expectations and movements in the US Dollar.
At the time of writing, the XAU/USD is fluctuating between key psychological levels of $3,300 and $3,400, while traders digest the release of the US Producer Price Index (PPI) for June.
The June PPI came in softer than expected, with the monthly headline figure coming in unchanged, below forecasts of a 0.2% increase. On an annual basis, headline PPI rose 2.3%, also underperforming expectations of 2.5% and marking a decline from May’s 2.6%.
Core PPI, which excludes food and energy, followed a similar trend, coming in at 0.0% MoM and 2.6% YoY, below both forecasted and previous readings.
The weaker-than-expected numbers suggest easing price pressures at the producer level, potentially reviving market hopes for a more dovish shift in Federal Reserve (Fed) policy and offering near-term support for Gold prices.
Daily digest market movers: Gold price reacts to inflation, trade tensions, and talk of replacing Fed Powell
- Policymakers at the Fed remain hesitant to pivot away from their restrictive stance without clearer signs of disinflation. This hawkish tone has weighed on Gold, which typically moves inversely to both interest rates and the US Dollar.
- Tuesday’s Consumer Price Index (CPI) report beat expectations, showing headline inflation rising at an annual rate of 2.7% in June, and core inflation also ticked higher, printing at 2.9% YoY. The data reduced market hopes for a near-term Fed rate cut, reinforcing a more hawkish stance and putting pressure on Gold.
- Trade tensions and geopolitical risks remain present, but they’ve taken a back seat to concerns about inflation and monetary policy.
- Growing speculation around Jerome Powell’s potential termination has introduced a new layer of uncertainty into the markets. With inflation still running hot and the Fed maintaining a restrictive stance, leadership instability could unsettle investor confidence and rattle rate expectations.
- President Trump said Treasury Secretary Scott Bessent is “an option” for the role of the Fed Chair on Tuesday, while he acknowledged Bessent was not his top candidate. Meanwhile, Bessent stated that Trump has no intention to fire Powell but signaled that Trump has begun a formal process to identify Powell’s eventual successor.
- While the Fed has acknowledged that tariffs could pose inflationary risks, questions about its independence have surfaced amid political pressure and broader economic concerns.
Trump announced a bilateral agreement that sets tariffs on goods imported from Indonesia at 19%, lowered from a threatened 32%. In exchange, Indonesia has committed to purchasing 50 Boeing jets and increasing US energy and agricultural imports. - According to the CME FedWatch Tool, the probability of a rate cut at the September meeting currently stands at 56.1%, while the prospects of the Fed leaving rates unchanged at the same meeting has fallen to 42.5%, down from 42.5% on Tuesday.
Technical analysis: Gold price remains conflicted below $3,400
Gold is currently consolidating in a narrow range, with price action hovering between the 20-day Simple Moving Average (SMA) at $3,333 and the 50-day SMA support at $3,323, converging near the psychological level of $3,330.
This alignment signals reduced volatility and a lack of clear trend, as traders remain cautious ahead of potential catalysts.
XAU/USD is currently holding just above the 38.2% Fibonacci retracement of the April low-to-high move at $3,292, which is acting as immediate support. On the upside, resistance is forming at the 23.6% Fibo level near $3,371, with the $3,400 psychological mark standing as the next major ceiling.
A symmetrical triangle pattern recently broke, but price action remains compressed, suggesting the market is still waiting for direction from incoming data or Fed guidance. The Relative Strength Index (RSI) at 50 reflects neutral momentum, reinforcing the lack of a trading bias.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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