Stronger-than-expected US non-farm payroll data reignited expectations of a September rate hike by the Federal Reserve, putting downward pressure on international gold prices in early September, which fell back to around $4,400 per ounce. Although hawkish statements from Fed officials and strong economic data have put short-term pressure on gold, a non-interest-bearing asset, and while the probability of a rate hike is still less than 60%, the market is essentially anticipating a rate hike. However, whether even a single rate hike can change the underlying logic of rising gold prices is uncertain. With the Fed entering its "quiet period" and key CPI/PPI data releases approaching, the gold market is at a sensitive turning point of intense battle between bulls and bears.

Better-than-expected non-farm payrolls data brings the probability of a September rate hike close to 60%.

U.S. nonfarm payrolls surged by 162,000 in August, far exceeding market expectations of 53,000; the unemployment rate remained at 4.1%, and wages rose 3.1% year-over-year. This strong labor market data directly boosted the probability of a September rate hike shown by the CME FedWatch tool from 50% to nearly 60%. Federal Reserve Chairman Kevin Warsh delivered a hawkish signal at the Jackson Hole symposium, stating that inflation was above the 2% policy target, and several officials simultaneously emphasized their determination to curb inflation. Although the White House (including President Trump) strongly called for rate cuts and even threatened tariffs, the Fed conveyed a stance of upholding its policy independence and being prepared to raise rates if inflation rebounds. (FedWatch Interest Rate Futures Watch, Source: CME Group)

The Possibilities and Costs of Political Compromise

However, it's worth noting that there's a prevailing view in the market that a "Potomac two-step dance" phenomenon exists in Washington politics, where officials' public statements often diverge from their actual actions. With the US midterm elections approaching on November 3rd, the likelihood of interest rate hikes at the September 16th and October 28th policy meetings may decrease to avoid monetary policy impacting the congressional race. As previously discussed, current economic data is insufficient, and more data is needed to determine if inflation has reached a point requiring a rate hike. The late Alan Greenspan's decision to delay rate hikes ultimately led to a decline in inflation, a situation the Federal Reserve has previously followed. Ideally, Friday's US CPI would show a decline, making it easier to soften the interpretation of Jackson Hole's hawkish remarks using the aforementioned logic. However, this also has significant drawbacks. Once the market forms the perception that "Federal Reserve decisions are influenced by political factors," institutional funds will accelerate their deployment of "currency devaluation hedging trades," potentially leading to a sell-off of US Treasury bonds. While gold and other precious metals have the ability to hedge against the massive US fiscal deficit and monetary and fiscal policy risks, they are also affected by US Treasury yields, which is not something the US wants to see. Therefore, the probability of an interest rate hike remains quite high. However, the current US federal debt has already exceeded $40 trillion, further amplifying market concerns about the weakening of the dollar's credibility, which should overall be beneficial for gold prices.

Market Analysis: The pullback in gold prices is due to profit-taking.

Conversely, gold prices retreated after Warsh's hawkish remarks, largely due to profit-taking by momentum traders following the surge in August. Gold ETFs saw a maximum gain of approximately 15% in August, closing up 11% at the end of the month. This short-term pullback does not signify the start of a long-term downtrend for gold. The willingness of domestic and international institutions to allocate to precious metals continues to rise, with central banks in many countries, led by China, continuing to purchase gold to diversify their US Treasury holdings and hedge against the risks of the high US deficit, thus providing a solid foundation for gold prices. Meanwhile, the situation in the Strait of Hormuz and rising oil prices have exacerbated market concerns about supply-side inflation. Coupled with continued demand for physical gold reserves from central banks, gold prices remain significantly higher than previous lows after the sharp decline, demonstrating clear resilience.

Summary of core viewpoints from mainstream institutions

According to the latest assessments from several authoritative commodity research institutions, the current gold price pullback is a temporary correction in market sentiment, not a trend reversal. The market shows clear short-to-medium-term divergences but a unified long-term consensus. Ashish Rajodiya, a commodity analyst at PL Capital, pointed out that the strong non-farm payroll data boosted expectations of a Fed rate hike, directly pressuring precious metal prices. However, strong buying support and resilient physical and institutional investment demand mean the overall upward trend in gold has not been broken; this decline is merely a temporary pause in the upward trend. Rajeev Sharan, research director at Brickwork Ratings, added that gold prices will continue to be under pressure in the next two weeks. The Fed's interest rate meeting on September 16th is a key turning point. Whether a rate hike is implemented or a hawkish stance is adopted, high US Treasury yields will be maintained, weakening the attractiveness of non-interest-bearing gold. Furthermore, cautious statements from Fed officials and the fact that inflation data will ultimately determine policy direction, coupled with continued political pressure on the Fed to cut rates, limit the probability of a significant tightening of monetary policy, leaving room for a subsequent stabilization and rebound in gold prices.

Summary and Technical Analysis:

Leading investment banks generally maintain a medium- to long-term optimistic outlook. Global central banks' continued gold purchases, weakening dollar credibility, and the global debt crisis suggest that short-term adjustments will not alter the long-term upward trend for gold. However, there is indeed a short-term risk of interest rate hikes. Even if rates are raised, the day of the hike might actually present a good buying opportunity for gold, as the US debt problem is a long-term issue and a short-term shift is slow. If the market widely believes that the Federal Reserve's policies are subject to political interference, funds will flow heavily into safe-haven assets like gold, which are seen as a way to avoid policy intervention, potentially leading to a rapid rise in gold prices. Technically, gold prices found support near the lower edge of the trading range. The 4430 level is also worth watching; it's a key level that has recently acted as a dividing line between bullish and bearish sentiment. A break above this resistance level could signal a trend reversal in gold prices. (Spot gold daily chart, source: EasyTrade) At 21:27 Beijing time, spot gold is currently trading at $4404 per ounce.