Gold trading reminder: PPI drags down US Treasury yields to a five-month low, gold prices continue to rise to meet US CPI
2025-09-11 07:57:12
Amidst global economic uncertainty, gold, a traditional safe-haven asset, is once again shining. After hitting a record high of $3,674 on Tuesday, spot gold continued its strong performance on Wednesday (September 10), closing at $3,640.44 per ounce, up approximately 0.4%. This year-to-date gain has exceeded 39%. This surge in gold prices is driven by unexpectedly weak US producer price inflation data, further solidified expectations of a Federal Reserve rate cut, and escalating geopolitical tensions. These intertwined factors are propelling the gold market into a new bull cycle. Investors are closely watching the upcoming CPI data, which will further determine the Fed's policy path. In early Asian trading on Thursday (September 11), spot gold saw slight gains, currently trading around $3,545 per ounce.
The U.S. Producer Price Index (PPI) unexpectedly fell by 0.1% month-over-month in August, far below economists' expectations of a 0.3% increase. Meanwhile, July's data was also revised down to 0.7%. This unexpectedly weak performance directly eased market concerns about inflation.
The PPI, a key indicator of producer price pressures, rose just 2.6% year-on-year, below expectations of a 3.3% increase, suggesting cooling inflationary momentum in the US economy. Declining service prices were the primary drag, echoing last week's weak non-farm payrolls report, which showed just 22,000 new jobs added in August and a sharp downward revision of 911,000 jobs for the year ended March. Together, these data paint a picture of a slowing US economy, with clear signs of a cooling labor market.
Against this backdrop, market expectations for a Fed rate cut have intensified. According to CME's FedWatch tool, there's a 100% chance the Fed will cut rates by at least 25 basis points at its September 16-17 meeting, with an 8% to 10% chance of a larger 50 basis point cut.
Analysts point out that the weak PPI data provides the Federal Reserve with ample room to cut interest rates, as Fed Chairman Powell hinted at the Jackson Hole conference, indicating that policy easing is imminent. Gold, as an interest rate-sensitive asset, naturally benefits from this; rate cuts typically weaken the dollar's appeal, driving capital inflows into non-interest-bearing assets like gold, thereby supporting gold prices.
Fawad Razaqzada, market analyst at City Index, stressed that if U.S. data continues to weaken, there may be more than two interest rate cuts before the end of the year, which will further amplify gold's upward momentum.
The US dollar index fluctuated after the release of the PPI data, closing at 97.83 on Wednesday, up just 0.08%. It has fallen nearly 10% so far this year. This weakness is mainly due to the confusion in US trade and fiscal policies and growing concerns about the independence of the Federal Reserve.
It's worth noting that a federal judge temporarily blocked President Trump's attempt to remove Federal Reserve Governor Tim Cook, a move seen as an early setback for the White House's pressure on the Fed's independence and further adding to market uncertainty. While the US dollar index lacks clear direction, its overall downward trend provides strong support for gold, as gold is priced in US dollars and a weaker dollar tends to boost its relative appeal.
Meanwhile, the U.S. bond market reflected similar sentiment. The 10-year Treasury yield fell 3.6 basis points to 4.038% on Wednesday, a new five-month low; the 30-year Treasury yield fell 3.2 basis points to 4.685% in late trading. This decline in yields was driven by an unexpected decline in PPI data and strong demand at the 10-year Treasury auction. The bid-to-cover ratio reached its highest level since April, with the indirect bid ratio reaching the second-highest level on record, indicating strong interest in U.S. debt from foreign investors and central banks.
The yield spread between two-year and 10-year Treasury bonds narrowed to 49.6 basis points. This curve movement is considered an indicator of economic expectations, suggesting market concerns about future growth. The break-even yield on Treasury Inflation-Protected Securities (TIPS) also indicates that the average annual inflation rate over the next decade is expected to be below 2.4%, close to the Federal Reserve's 2% target, further solidifying expectations of interest rate cuts.
Falling bond yields typically reduce the opportunity cost of holding gold, prompting investors to turn to gold as a safe-haven asset, especially at a time when signs of an economic slowdown are emerging.
Heightened geopolitical tensions also provided additional support for gold. An Israeli airstrike on Qatar, in which an assassination attempt was made on a Hamas leader, and Poland's downing of a Russian drone that entered its airspace continued overnight tensions that kept investors on edge.
Amidst rising global uncertainty, gold's safe-haven properties have been further amplified. While US stocks performed well—the S&P 500 rose 0.30% to 6,532.04 and the Nasdaq rose 0.03% to 21,886.06, both hitting record closing highs—this was largely due to a 36% surge in Oracle's stock price, driven by surging demand for AI cloud services. Oracle's market capitalization, approaching that of Tesla, boosted the shares of chipmakers and power supply companies. Meanwhile, Barclays and Deutsche Bank raised their S&P 500 end-2025 targets, citing strong corporate earnings and optimism about AI.
However, stock market optimism hasn't completely masked underlying economic concerns. The S&P 500 has climbed approximately 11% this year, and the Nasdaq has risen about 13%. However, valuations are stretched, which, as Bill Northey, senior investment director at U.S. Bank Wealth Management, points out, puts downward pressure on further gains. In contrast, gold's gains have been even stronger, demonstrating its resilience amidst multiple risks.
Investors' focus is turning to Thursday's CPI data, which is expected to rise by 0.3% month-on-month and 2.9% year-on-year. If the actual data is lower than expected, it will further strengthen the path of interest rate cuts and push gold prices to new highs.
In summary, the current strength of the gold market stems from a combination of weak US economic data, geopolitical risks, and the Federal Reserve's policy shift. While gold prices may fluctuate in the short term due to CPI data, the overall bull market is firmly established, and its year-to-date gain of over 39% suggests further upside potential. Investors should be wary of potential risks, such as an unexpected rebound in inflation or a easing of geopolitical tensions. However, in the long term, gold's value as a diversified asset remains prominent. With the Federal Reserve embarking on a cycle of interest rate cuts, gold investment may enter a true "golden age." Closely monitoring macroeconomic data and positioning yourself appropriately to capitalize on these opportunities is recommended.
(Spot gold daily chart, source: Yihuitong)
At 07:53 Beijing time, spot gold was trading at $3645.19 per ounce.
PPI data unexpectedly fell: inflationary pressure eased, leaving the door open for interest rate cuts
The U.S. Producer Price Index (PPI) unexpectedly fell by 0.1% month-over-month in August, far below economists' expectations of a 0.3% increase. Meanwhile, July's data was also revised down to 0.7%. This unexpectedly weak performance directly eased market concerns about inflation.
The PPI, a key indicator of producer price pressures, rose just 2.6% year-on-year, below expectations of a 3.3% increase, suggesting cooling inflationary momentum in the US economy. Declining service prices were the primary drag, echoing last week's weak non-farm payrolls report, which showed just 22,000 new jobs added in August and a sharp downward revision of 911,000 jobs for the year ended March. Together, these data paint a picture of a slowing US economy, with clear signs of a cooling labor market.
Against this backdrop, market expectations for a Fed rate cut have intensified. According to CME's FedWatch tool, there's a 100% chance the Fed will cut rates by at least 25 basis points at its September 16-17 meeting, with an 8% to 10% chance of a larger 50 basis point cut.
Analysts point out that the weak PPI data provides the Federal Reserve with ample room to cut interest rates, as Fed Chairman Powell hinted at the Jackson Hole conference, indicating that policy easing is imminent. Gold, as an interest rate-sensitive asset, naturally benefits from this; rate cuts typically weaken the dollar's appeal, driving capital inflows into non-interest-bearing assets like gold, thereby supporting gold prices.
Fawad Razaqzada, market analyst at City Index, stressed that if U.S. data continues to weaken, there may be more than two interest rate cuts before the end of the year, which will further amplify gold's upward momentum.
Dollar and bond market linkage: Yield curve changes highlight gold's safe-haven appeal
The US dollar index fluctuated after the release of the PPI data, closing at 97.83 on Wednesday, up just 0.08%. It has fallen nearly 10% so far this year. This weakness is mainly due to the confusion in US trade and fiscal policies and growing concerns about the independence of the Federal Reserve.
It's worth noting that a federal judge temporarily blocked President Trump's attempt to remove Federal Reserve Governor Tim Cook, a move seen as an early setback for the White House's pressure on the Fed's independence and further adding to market uncertainty. While the US dollar index lacks clear direction, its overall downward trend provides strong support for gold, as gold is priced in US dollars and a weaker dollar tends to boost its relative appeal.
Meanwhile, the U.S. bond market reflected similar sentiment. The 10-year Treasury yield fell 3.6 basis points to 4.038% on Wednesday, a new five-month low; the 30-year Treasury yield fell 3.2 basis points to 4.685% in late trading. This decline in yields was driven by an unexpected decline in PPI data and strong demand at the 10-year Treasury auction. The bid-to-cover ratio reached its highest level since April, with the indirect bid ratio reaching the second-highest level on record, indicating strong interest in U.S. debt from foreign investors and central banks.
The yield spread between two-year and 10-year Treasury bonds narrowed to 49.6 basis points. This curve movement is considered an indicator of economic expectations, suggesting market concerns about future growth. The break-even yield on Treasury Inflation-Protected Securities (TIPS) also indicates that the average annual inflation rate over the next decade is expected to be below 2.4%, close to the Federal Reserve's 2% target, further solidifying expectations of interest rate cuts.
Falling bond yields typically reduce the opportunity cost of holding gold, prompting investors to turn to gold as a safe-haven asset, especially at a time when signs of an economic slowdown are emerging.
Geopolitical risks intensify: Gold remains resilient amid stock market optimism
Heightened geopolitical tensions also provided additional support for gold. An Israeli airstrike on Qatar, in which an assassination attempt was made on a Hamas leader, and Poland's downing of a Russian drone that entered its airspace continued overnight tensions that kept investors on edge.
Amidst rising global uncertainty, gold's safe-haven properties have been further amplified. While US stocks performed well—the S&P 500 rose 0.30% to 6,532.04 and the Nasdaq rose 0.03% to 21,886.06, both hitting record closing highs—this was largely due to a 36% surge in Oracle's stock price, driven by surging demand for AI cloud services. Oracle's market capitalization, approaching that of Tesla, boosted the shares of chipmakers and power supply companies. Meanwhile, Barclays and Deutsche Bank raised their S&P 500 end-2025 targets, citing strong corporate earnings and optimism about AI.
However, stock market optimism hasn't completely masked underlying economic concerns. The S&P 500 has climbed approximately 11% this year, and the Nasdaq has risen about 13%. However, valuations are stretched, which, as Bill Northey, senior investment director at U.S. Bank Wealth Management, points out, puts downward pressure on further gains. In contrast, gold's gains have been even stronger, demonstrating its resilience amidst multiple risks.
Investors' focus is turning to Thursday's CPI data, which is expected to rise by 0.3% month-on-month and 2.9% year-on-year. If the actual data is lower than expected, it will further strengthen the path of interest rate cuts and push gold prices to new highs.
summary
In summary, the current strength of the gold market stems from a combination of weak US economic data, geopolitical risks, and the Federal Reserve's policy shift. While gold prices may fluctuate in the short term due to CPI data, the overall bull market is firmly established, and its year-to-date gain of over 39% suggests further upside potential. Investors should be wary of potential risks, such as an unexpected rebound in inflation or a easing of geopolitical tensions. However, in the long term, gold's value as a diversified asset remains prominent. With the Federal Reserve embarking on a cycle of interest rate cuts, gold investment may enter a true "golden age." Closely monitoring macroeconomic data and positioning yourself appropriately to capitalize on these opportunities is recommended.
(Spot gold daily chart, source: Yihuitong)
At 07:53 Beijing time, spot gold was trading at $3645.19 per ounce.
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