Gold trading reminder: Fed rate cut expectations "turn sharply", gold prices fall to a two-week low, pay attention to the "Trump-Putin summit" and "terrifying data"
2025-08-15 07:20:51
In early Asian trading on Friday (August 15), spot gold hovered near a near two-week low hit overnight, trading around $3,333 per ounce. Gold prices suffered a sharp drop on Thursday, with spot gold falling 0.6% to $3,335.25 per ounce and futures closing down 0.7% at $3,383.2. The latest US economic data dealt a cold blow, dampening market expectations for aggressive interest rate cuts from the Federal Reserve and triggering a sell-off in gold, a traditional safe-haven asset.
The U.S. Department of Labor reported a 3.3% year-on-year surge in the Producer Price Index (PPI) for July, far exceeding market expectations of a 2.5% increase and marking the largest increase in three years. More worryingly, this surge wasn't driven by a single category, but rather by a broad surge in the cost of goods and services. Ole Hansen, Head of Commodity Strategy at Saxo Bank, astutely noted that this unexpectedly strong PPI reading likely foreshadows a rise in the upcoming core PCE inflation data for July.
The unexpected rise in inflation data dealt a direct blow to market confidence. Previously, some traders had bet on a potentially massive 50 basis point rate cut by the Federal Reserve in September, but those expectations have now been significantly reduced. St. Louis Fed President Musallem added further ire, stating explicitly that a half-percentage point rate cut was "unnecessary" given the economy's near-full employment and above-target inflation.
Meanwhile, the U.S. labor market has demonstrated remarkable resilience. Initial jobless claims fell by 3,000 to 224,000 last week, below expectations of 228,000. This data further confirms the robust fundamentals of the U.S. economy, providing the Federal Reserve with greater room for policy maneuver.
Angelo Manolatos, macro strategist at Wells Fargo, believes that the stable job market has reduced the need for the Federal Reserve to take aggressive interest rate cuts. While the probability of a 25 basis point rate cut in September remains high, expectations for consecutive large rate cuts have been significantly dampened. Based on the latest market pricing, traders are now more inclined to believe that the Fed will cut interest rates by 25 basis points each in September and October.
Under the dual blow of rising inflation expectations and cooling expectations for interest rate cuts, the US dollar index rose 0.5% to 98.25 on Thursday, marking its largest single-day gain in more than two weeks. The strengthening dollar directly weakened gold's appeal to overseas buyers, becoming another straw that broke the camel's back for gold prices.
Meanwhile, U.S. Treasury yields rose across the board. The 10-year Treasury yield rose 5.3 basis points to 4.293%, while the two-year yield soared 5.4 basis points to 3.741%. Rising real interest rates further weakened the appeal of gold, a non-interest-bearing asset. Matt Weller, head of global market research at StoneX, warned that if inflation persists at this level, the Federal Reserve may only cut interest rates twice at most for the rest of the year.
Despite the short-term setback, many analysts remain optimistic about gold's medium- to long-term prospects. Saxo Bank's Hansen believes the Federal Reserve will ultimately have to make a difficult choice between fighting inflation and supporting the economy. Bank of America's technical analysis suggests the 10-year Treasury yield may form a "death cross," signaling a continuation of the downward trend in long-term interest rates, which could provide potential support for gold.
Thierry Wizman of Macquarie Group noted that the next key turning point will be the release of the spending price index later this month. If the data shows a broad-based increase in services sector inflation, the market may further adjust its expectations for Fed policy. Fed Chairman Powell's speech at Jackson Hole next week will also provide important market guidance.
U.S. President Donald Trump said on the eve of his summit with Russian President Vladimir Putin on Friday that he believed Putin was ready to end the conflict between Russia and Ukraine, but that achieving peace would likely require at least a second meeting including Ukraine's leader.
Ukrainian President Volodymyr Zelensky and his European allies stepped up efforts this week to prevent any deal between the United States and Russia at their Alaska summit on Friday that would put Ukraine at risk of future attack.
"I think President Putin will seek peace, I think President Zelensky will seek peace. We'll see if they can achieve it," Trump told reporters at the White House.
He downplayed the possibility of a ceasefire agreement at the summit and speculated that a second meeting with more leaders could be held in the future.
Putin had held talks with his top ministers and security officials to prepare for a meeting with Trump in Anchorage, Alaska, which could shape the ultimate course of Europe's largest war since World War II.
In the short term, technical signals are turning slightly bearish, expectations of aggressive Federal Reserve rate cuts have cooled, and the Russia-Ukraine conflict is expected to end. Gold prices may continue to face pressure, but in the medium to long term, global economic and geopolitical uncertainties will continue to provide support for gold. Investors should also closely monitor the upcoming US core PCE data, the Jackson Hole meeting, and the August employment report, which will determine whether gold can resume its upward trend.
The U.S. industrial output monthly rate for July, the preliminary value of the University of Michigan Consumer Confidence Index for August, the August New York Fed Manufacturing Index and the U.S. retail sales monthly rate for July (commonly known as the "horror data") will be released on this trading day, and investors also need to pay close attention.
(Spot gold daily chart, source: Yihuitong)
At 07:15 Beijing time, spot gold was trading at $3333.55 per ounce.
The inflation tiger is rising again
The U.S. Department of Labor reported a 3.3% year-on-year surge in the Producer Price Index (PPI) for July, far exceeding market expectations of a 2.5% increase and marking the largest increase in three years. More worryingly, this surge wasn't driven by a single category, but rather by a broad surge in the cost of goods and services. Ole Hansen, Head of Commodity Strategy at Saxo Bank, astutely noted that this unexpectedly strong PPI reading likely foreshadows a rise in the upcoming core PCE inflation data for July.
The unexpected rise in inflation data dealt a direct blow to market confidence. Previously, some traders had bet on a potentially massive 50 basis point rate cut by the Federal Reserve in September, but those expectations have now been significantly reduced. St. Louis Fed President Musallem added further ire, stating explicitly that a half-percentage point rate cut was "unnecessary" given the economy's near-full employment and above-target inflation.
The job market is resilient
Meanwhile, the U.S. labor market has demonstrated remarkable resilience. Initial jobless claims fell by 3,000 to 224,000 last week, below expectations of 228,000. This data further confirms the robust fundamentals of the U.S. economy, providing the Federal Reserve with greater room for policy maneuver.
Angelo Manolatos, macro strategist at Wells Fargo, believes that the stable job market has reduced the need for the Federal Reserve to take aggressive interest rate cuts. While the probability of a 25 basis point rate cut in September remains high, expectations for consecutive large rate cuts have been significantly dampened. Based on the latest market pricing, traders are now more inclined to believe that the Fed will cut interest rates by 25 basis points each in September and October.
US dollar and US bonds "double kill" gold
Under the dual blow of rising inflation expectations and cooling expectations for interest rate cuts, the US dollar index rose 0.5% to 98.25 on Thursday, marking its largest single-day gain in more than two weeks. The strengthening dollar directly weakened gold's appeal to overseas buyers, becoming another straw that broke the camel's back for gold prices.
Meanwhile, U.S. Treasury yields rose across the board. The 10-year Treasury yield rose 5.3 basis points to 4.293%, while the two-year yield soared 5.4 basis points to 3.741%. Rising real interest rates further weakened the appeal of gold, a non-interest-bearing asset. Matt Weller, head of global market research at StoneX, warned that if inflation persists at this level, the Federal Reserve may only cut interest rates twice at most for the rest of the year.
Is the foundation of the gold bull market shaken?
Despite the short-term setback, many analysts remain optimistic about gold's medium- to long-term prospects. Saxo Bank's Hansen believes the Federal Reserve will ultimately have to make a difficult choice between fighting inflation and supporting the economy. Bank of America's technical analysis suggests the 10-year Treasury yield may form a "death cross," signaling a continuation of the downward trend in long-term interest rates, which could provide potential support for gold.
Thierry Wizman of Macquarie Group noted that the next key turning point will be the release of the spending price index later this month. If the data shows a broad-based increase in services sector inflation, the market may further adjust its expectations for Fed policy. Fed Chairman Powell's speech at Jackson Hole next week will also provide important market guidance.
Watch the Trump-Putin meeting
U.S. President Donald Trump said on the eve of his summit with Russian President Vladimir Putin on Friday that he believed Putin was ready to end the conflict between Russia and Ukraine, but that achieving peace would likely require at least a second meeting including Ukraine's leader.
Ukrainian President Volodymyr Zelensky and his European allies stepped up efforts this week to prevent any deal between the United States and Russia at their Alaska summit on Friday that would put Ukraine at risk of future attack.
"I think President Putin will seek peace, I think President Zelensky will seek peace. We'll see if they can achieve it," Trump told reporters at the White House.
He downplayed the possibility of a ceasefire agreement at the summit and speculated that a second meeting with more leaders could be held in the future.
Putin had held talks with his top ministers and security officials to prepare for a meeting with Trump in Anchorage, Alaska, which could shape the ultimate course of Europe's largest war since World War II.
How should investors respond?
In the short term, technical signals are turning slightly bearish, expectations of aggressive Federal Reserve rate cuts have cooled, and the Russia-Ukraine conflict is expected to end. Gold prices may continue to face pressure, but in the medium to long term, global economic and geopolitical uncertainties will continue to provide support for gold. Investors should also closely monitor the upcoming US core PCE data, the Jackson Hole meeting, and the August employment report, which will determine whether gold can resume its upward trend.
The U.S. industrial output monthly rate for July, the preliminary value of the University of Michigan Consumer Confidence Index for August, the August New York Fed Manufacturing Index and the U.S. retail sales monthly rate for July (commonly known as the "horror data") will be released on this trading day, and investors also need to pay close attention.
(Spot gold daily chart, source: Yihuitong)
At 07:15 Beijing time, spot gold was trading at $3333.55 per ounce.
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