On the back of the unexpected drop in producer prices inflation, we saw an immediate downside reaction in the dollar, while gold, which was already higher on the day, showed a relatively muted response. This is understandable, as recent gold buying has partly been driven by concerns over persistent inflation (plus central buying, retail demand and what have you). On one hand, a weaker US dollar tends to support gold, but on the other, a softer inflation reading diminishes demand for gold as an inflation hedge. With prices over-extended, a bit of consolidation and short-term weakness should not come as shocking even if the longer-term gold outlook remains positive.

Softer PPI data fails to lift gold – here’s why

We have just seen the release of US PPI and the fact that both headline and core prints fell by 0.1% in August took the market by surprise given that gains of 0.3% were expected on both fronts. What’s more, July was revised down to +0.7% from +0.9% previously. As a result, the year-over-year PPI fell to +2.6% against expectations of 3.3% as energy and services prices took a dip. So, we saw an immediate dollar reaction to the downside, but gold only showed a mild response. That makes sense because people have been buying gold partly because of concerns about sticky inflation. So, on the one hand, the weaker US dollar is a positive development for gold, but the softer inflation print reduces demand for gold from an inflation-hedging point of view.

What to expect from gold ahead of the September 17 FOMC meeting?

With gold largely pricing in near-term interest rate cuts by the Fed, it may become difficult for it to sustain the momentum without any fresh catalysts. Yes, we have seen a bit of a flare up from the geopolitical front concerning Israeli strikes in Qatar and Russia’s drone incursions in Poland, but I wonder if that’s enough to increase haven flows dramatically. Perhaps the bulk of gold’s latest rally has already taken place. I would be very cautious chasing the metal after such an extended run.

What has been supporting the gold outlook?

Gold has been continuing to find strong support from the slump in real bond yields, amid increasing signs of stagflation in recent days. Momentum has also been strong, and traders have been quick to jump on any short-term weakness, buying every dip they can get their hands on. Any further weakness in US data should continue to support gold in the view that more than two rate cuts could be on the way before the year is out. Granted, gold is beginning to look overstretched on multiple time frames now, but unless something changes from the macro front, any weakness we see here could be driven purely by profit-taking than traders trying to short gold. Indeed, with central bank gold buying continuing in China and elsewhere, albeit at a slower, there are few bearish factors for traders to latch on at the moment. That could change in the coming months as supply reacts to elevated demand, but so far production growth has been slow as there is typically a long lag between the discovery of new gold deposits and the point at which a mine actually begins production.

What about yesterday’s downward revision to jobs data?

It is worth revisiting yesterday’s big revision in US jobs data when thinking about the gold outlook. After all, the soft US jobs data does not bode well for the US dollar given that the Fed’s focus has shifted from inflation to employment. In other words, employment matters more for the Fed now insofar as rate changes are concerned than inflation. As you might have seen, the BLS revised its US annual benchmark payrolls by a record -911K for March 2025. This was both more than expected and a record. The news didn’t immediately lead to any fresh dollar selling as it was expected, but saw gold hit yet another record high, with the metal extending its gains to more than 6% so far in September. Any further signs of deterioration in employment would increase the risks of a recession and therefore lead to an increase in rate-cut bets.

Short-term gold forecast: key levels to watch

Right now, the gold chart is bullish, but it will only turn bearish if its pattern of higher highs and higher lows breaks. Until then, dip-buying dominates, backed by strong upward momentum and rising moving averages.

Key short-term support levels sit at $3,600, then $3,564 and $3,500. On the upside, focus shifts to round numbers like $3,700 and Fibonacci targets, with the 161.8% extension of the April–May drop at $3,735.

Overall, the trend remains bullish, though RSI signals caution across major timeframes.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R