Inflation has fallen from a high level, but the tone of Fed officials is still hawkish. The market’s expectations for aggressive interest rate hikes by the Fed have not effectively cooled, and US bond yields have continued to rise. At the same time, the 10-year TIPS breakeven inflation rate, which measures the expected inflation rate, also rebounded. It can be seen that the market believes that the July data only represents the beginning of inflation relief, but it is still possible that inflation will be high in the next few months and that the Fed will raise interest rates again sharply, so gold has not effectively shot up. But once an official releases a dove signal, it is time for the gold bulls to ride the dust.
The monthly rate of PPI in the United States recorded -0.5% in July, the first decline since the early days of the epidemic, and the slowdown in the growth rate of the U.S. CPI in July announced on Wednesday contributed to the market’s expectations for inflation to peak. But the market believes that inflation will remain high, unless more data show inflation falls.
Fed official Daly said that the Fed will not rule out a 75 basis point interest rate hike in September, and will pay close attention to August non-agricultural and CPI data. Daly pushed back against expectations that rate cuts will start suddenly next year. At present, the Fed officials maintain a consistent hawkish tone, which is an important factor for gold not effectively rising. The current fedwatch forecast shows that the probability of the Fed raising interest rates by 75 basis points in September is less than 40%, and it may cut interest rates for the first time in July next year.