Gold prices are once again trying to organize a recovery in the early morning session today (Wednesday). Investors are now eagerly awaiting the US inflation data through the Producer Price Index (PPI) which will be announced tonight.
Although gold prices are trying to rise, this increase is not yet convincing enough. This is because the US Dollar (USD) continues to remain strong for the seventh consecutive day, moving in strengthening mode against other major currencies.
Rising US Inflation Pushes USD Strong, Gold Pressured
The strength of the USD is seen to be largely supported by the surge in US government bond yields (US Treasury 10-year) after yesterday's Consumer Price Index (CPI) data showed that US inflation increased in June, moving further away from the 2% target set by the Federal Reserve (Fed).
In brief:
June CPI rose 0.3% compared to the previous month.
Annual inflation now reaches 2.7%, in line with market expectations.
Core CPI rose 0.2% month-on-month, and 2.9% year-on-year, but slightly less than expected.
The increase has investors now expecting the Fed to delay any interest rate cuts longer than previously expected. The probability of a rate cut at the September meeting has now fallen to around 52%, down from almost 60% before the data was released.
In addition, President Donald Trump's announcement of the success of trade talks with Indonesia also strengthened sentiment towards the USD, putting additional pressure on gold, which offers no interest return.
Japanese Yen Depressed, But US Tech Stocks Limit Dollar Strength
In addition, US and USD bond yields also rose in line with a surge in Japanese government bond yields and a strengthening of the USD/JPY currency pair. This comes as Japanese financial markets are turbulent due to political and fiscal concerns in the country. Japan's ruling coalition is expected to lose its majority in the upper house election on July 20, thus increasing political uncertainty as Tokyo is still struggling to reach a trade deal with Washington.
However, the rise of American technology stocks led by AI giant Nvidia has somewhat curbed the USD momentum and given gold a breathing space to hold on.
Uncertainty over Trump's policy and Powell's future in focus
Currently, the market is still overshadowed by uncertainty regarding the direction of Trump's trade policy and the future of Jerome Powell as Fed Chairman. These two factors have somewhat weakened the dollar and given gold prices a chance to rebound.
However, the extent to which this rise in gold prices can last is still uncertain. Many traders are reluctant to make big bets until they get a clearer picture from the PPI data later tonight.
What to Expect from Tonight's PPI Data?
If the US PPI data for June shows a warmer-than-expected reading, for example above 2.5% annually and 0.2% monthly, then the dollar has the potential to rebound, thus putting pressure on gold prices again.
On the other hand, if this data is mediocre or weak, gold may continue to receive support as it reduces pressure on the Fed to maintain high rates.
Trade Factors Still a Key Driver of Market Sentiment
At the same time, developments in trade negotiations also remain a key driver of global risk sentiment. This is especially true after Trump announced that he would send notices to smaller countries on US tariffs, a move that could spark fresh concerns about global trade tensions.
Conclusion: Gold Still in Uncertain Zone
Gold is currently in a rather challenging situation. Although there is some room for a rebound, the strength of the USD and the uncertainty of US trade and monetary policy make the yellow metal market very sensitive to any new news. Tonight, all attention will be focused on PPI data which is expected to determine the next direction.
MARKETS advises traders to remain cautious and be prepared for any sudden changes in the gold market, especially as market sentiment remains uncertain and US economic data continues to cause shock after shock.
