Gold's bullish momentum to be challenged by US inflation figures, say analysts

Gold has continued its rally over the last few weeks, with prices hitting a series of record highs. 

However, the market would be keenly awaiting US inflation data to be released later on Wednesday. 

Gold prices have surged to a new record high of over $3,700 per ounce on Tuesday, primarily fueled by increasing speculation of US interest rate cuts. 

This sentiment was bolstered by a surprisingly weak US labor market report released last Friday, showing a mere 22,000 jobs created in August, following an already anemic July. 

The deteriorating job market has led analysts to fully price in a 25 basis point interest rate cut by the US Federal Reserve next week, with some even anticipating a larger move.

Gold’s rally may face headwinds

However, the sustained rally in gold could face a significant challenge with the release of this week's US inflation data, according to Commerzbank AG. 

While consumer price increases due to US tariffs have been more moderate than expected so far, a stronger-than-anticipated rise in prices could significantly dampen speculation surrounding interest rate cuts. 

Most market participants currently expect a gradual increase in prices, making the upcoming inflation figures a potential catalyst for a sharp market correction if they indicate a more substantial surge. 

“Against this backdrop, the inflation figures have great potential for a sharp market correction if they show a significantly stronger price surge,” Thu Lan Nguyen, head of FX and commodity research at Commerzbank, said. 

Bullish momentum

On Wednesday, gold prices hovered near all-time highs as the bullish momentum remained intact.

“Moreover, the fundamental backdrop suggests that the path of least resistance for the bullion is to the upside, though bulls might opt to wait for the release of the US inflation figures,” Haresh Menghani, editor at FXstreet, said in a report. 

Both the US Producer Price Index (PPI) and the US Consumer Price Index (CPI) are scheduled for release this week.

The PPI will be released on Wednesday, followed by the CPI on Thursday, both during the North American trading session.

On Tuesday, the government reported that the US economy likely generated 911,000 fewer jobs in the year ending in March than earlier projections indicated. 

This suggests that job growth was already slowing before President Donald Trump implemented significant tariffs on imports.

Gold prices have risen significantly this year, up 38% after a 27% increase in 2024.

This growth is attributed to a weaker dollar, substantial central bank gold purchases, accommodative monetary policies, and increased global instability.

Technical outlook

“From a technical perspective, the daily Relative Strength Index (RSI) remains in overbought territory and makes it prudent to wait for some near-term consolidation or a further pullback before any further move higher,” Menghani added. 

The immediate downside for the gold price is likely protected at the $3,600 round-figure mark, according to him. 

Should the precious metal fall below the $3,600 per ounce level, the weekly low of $3,580 becomes the next key level. 

A further decline could see the price extend its corrective slide towards the intermediate support zone of $3,565-$3,560, ultimately heading towards last Thursday's swing low of around $3,510, Menghani said.