Gold prices retreated last week, with volatility escalating in the London spot market. After the CPI release, a modest rebound emerged from lower levels, culminating in a weekly decline of 1.87%. Meanwhile, the COMEX gold main contract fell 1.44% for the week, and the Shanghai gold 2610 contract dropped 0.91%, with the domestic market showing a smaller decline than its international counterpart.
Following the release of the US August CPI data during Friday's night session, the probability of a Federal Reserve rate hike surged to 90%, effectively validating the bearish sentiment already priced into the market. This week, market attention turns to the Federal Reserve's September policy meeting, along with US economic data and movements in the dollar and Treasury yields, all of which are expected to influence gold's trajectory.
On the macroeconomic front, the US economy currently exhibits a combination of "solid employment and re-emerging inflationary stickiness." In the labor market, initial jobless claims for the week ending September 5 decreased by 1,000 to 206,000, maintaining a narrow range of 189,000 to 212,000 since mid-July. Continuing claims edged slightly lower to 1.774 million. On the inflation side, US August PPI rose 0.4% month-over-month and 5.4% year-over-year, exceeding market expectations. The overall CPI increased 0.4% monthly and 3.4% annually, in line with consensus, while core CPI fell to 2.4% year-over-year from July's 2.5%, matching forecasts. However, core CPI rose 0.3% month-over-month, surpassing the anticipated 0.2%.
Following this data, the probability of a September rate hike jumped to 90%. Despite this, internal divisions persist within the Federal Reserve. Governor Christopher Waller explicitly stated that if inflation data confirms a cooling trend, he would lean toward maintaining rates unchanged in September, but would consider a hike if data shows acceleration. New York Fed President John Williams also noted that tariff impacts are gradually fading and inflation is trending downward slowly, suggesting insufficient justification for a rate increase at this juncture.
On the geopolitical front, the US-Iran conflict escalated further during the week, with mutual hostilities and retaliatory actions showing no signs of abating. Additionally, Yemen's Houthi rebels have seized strategic locations in the Bab el-Mandeb Strait and continue launching attacks on Saudi Arabia, prompting urgent intervention and mediation from major powers. The situation remains highly unpredictable.
In the short term, the dominant factor for gold is "inflation stickiness boosting rate hike expectations." However, with the probability of a hike now near 90%, the market has nearly fully priced this in. Consequently, the impact of the September FOMC meeting outcome on prices has diminished. The key question lies in whether the Fed's policy statement will maintain a more aggressive hawkish tone.
Furthermore, the US military's destruction of an Iranian oil tanker and Iran's retaliatory strikes on US targets mark an escalation from "limited strikes" to "direct military confrontation." Traffic through the Strait of Hormuz has plummeted to fewer than 10 vessels daily. While geopolitical tensions push inflation higher through oil prices, they also trap the Fed in a policy dilemma—"fighting inflation requires rate hikes, but rate hikes exacerbate recession risks." This predicament presents a potential opportunity for gold to sustain a rebound. Combined with the upcoming US midterm elections in November, gold's dual role as a safe haven and inflation hedge may come into play during this period.