US inflation meets expectations, gold prices hit a two-month high, and underlying tensions in the Middle East may put pressure on gold!
On Wednesday, gold broke through a key resistance in one fell swoop, briefly hitting a two-month high since June 5. The dovish US inflation data was the direct driver, prompting the market to quickly lower its bets on a rate hike in September, increasing gold's appeal. However, tensions in the Middle East persist, oil prices hold high levels, and concerns about renewed inflation quietly accumulate, which may actually support expectations of further rate hikes, causing bulls to remain cautious.
Data shows that the CPI in July rose only slightly by 0.1% month-on-month, fully in line with market expectations, while the year-on-year increase slowed from 3.5% in June to 3.4%. Core CPI, excluding food and energy, rose 2.5% year-on-year, also below the previous value of 2.6%. This result temporarily eased previous concerns about a return in inflation.
The CME FedWatch tool shows that investors' probability of a Fed rate hike in September has been lowered from about 46% before the data release to around 40%. The interest rate futures market adjusted its expectations in tandem, with the expected rate hike dropping from nearly 30 basis points to about 26 basis points. On July 29, the Fed kept its policy rate unchanged at 3.50% to 3.75%. Although three members voted against rate hikes at the time, the latest data further weakens the hawks' short-term rationale for further pushing for a rate hike.
The moderate performance of inflation data, combined with recent signs of weakness in the labor market, has made the market more convinced that the likelihood of the Fed keeping rates steady at the September meeting has significantly increased. Non-yielding gold is often more attractive in relatively accommodative interest rate environments. When rate hike expectations cool down and the opportunity cost of holding gold decreases, funds naturally flow into this traditional safe-haven asset.
Although the market has significantly reduced its bets on a rate hike in September, policy divisions within the Fed have not disappeared, as officials have signaled that they are closely monitoring inflation trends. Over the past year, most officials had expected inflation to gradually fall back to the 2% target without further rate hikes. However, some officials now believe it is necessary to maintain higher interest rates, while others say that if subsequent data makes current forecasts unreliable, they may join the hawkish camp.
Meanwhile, tensions between the battlefield and shipping routes have not eased. The United States and Yemeni Houthi forces have respectively reported attacks on ships in the Strait of Hormuz and the Bab-el-Mandeb Strait. Shipping data shows that the number of ships passing through the Strait of Hormuz on Tuesday dropped to a one-week low of just eight, while pre-war daily traffic was usually between 125 and 140. This waterway carries about 20% of the world's crude oil shipments, and its obstruction has directly heightened market concerns about supply disruptions.
Market Insight:
This round of gold price increases is the result of inflation data meeting expectations, the Fed's interest rate hike bets cooling down, rising geopolitical risks in the Middle East, and technical breakthroughs. In the short term, the market will closely monitor Thursday's producer price index and Friday's retail sales data, which will determine the direction of further adjustments in rate hike expectations.
