On August 12, gold skyrocketed again. Investors are closely following the data on US PPI and CPI, which are important basis for Fed interest rate cuts. Once the expectation of Fed interest rate cut is strengthened, as a non-interest-bearing asset, gold will get the biggest buff. Compared to stocks, gold also has the halo of a safe-haven asset, so at this moment, gold becomes the best outlet for interest rate cut expectations.
Two heavyweight data releases are coming.
On August 12, London gold rose sharply by 1.7%, closing at 2471.93, while COMEX gold futures closed at $2513.4 per ounce, up 1.62% intraday. After experiencing a 0.5% decline last week, gold returned to a soaring trajectory. Investors are preparing to face heavyweight economic data on Tuesday and Wednesday, which will reveal the inflation status of the world's largest economy.
The US will release July PPI data on Tuesday (August 13) and July CPI data on Wednesday (August 14). The market expects the annual growth rate of US July PPI to be 2.4%, down from 2.6% in the previous month, and the monthly rate for July PPI to be 0.1%, down from 0.2% in the previous month. The year-on-year core PPI for July is expected to be 2.8%, down from 3% in the previous month. The annual growth rate of July CPI is expected to be 2.9%, slightly lower than the previous month's 3.0%, and the monthly rate is expected to accelerate from -0.1% to 0.2% month-on-month. The prediction for the core CPI's year-on-year growth rate will drop from 3.3% to 3.2%, and the month-on-month rate will rise from 0.1% to 0.2%.
The Producer Price Index (PPI) and the Consumer Price Index (CPI) are important indicators that measure inflation, and their changes will have an impact on the market. If PPI and CPI data are higher than expected, it may trigger market concerns about inflation, leading to a drop in the stock market and a sell-off in the bond market. Conversely, if the data is lower than expected, it will help establish, or strengthen, the expectation of Fed interest rate cuts.
Gold is one of the best-performing assets this year.
In the first half of 2024, gold became one of the best-performing asset categories, with the international gold price rising by about 10%. The latest data from the World Gold Council shows that gold has not only risen by 15% in US dollar terms, but also achieved double-digit growth in other currency terms.
Compared to the US stock market, the S&P index has risen and fallen this year, and investors have experienced a thrilling roller coaster ride with both gains and losses. But gold has been rising all the way this year, and even if it fluctuates, it remains in a high range without breaking the upward trend.
Multiple factors make gold easy to rise and difficult to fall.
Under the promotion of factors such as geopolitical tensions, the growing US fiscal deficit, diversification of central bank reserves, and inflation hedging, gold is easy to rise and difficult to fall, and breaking a historical high probability event.
Although the expectation of Fed interest rate cuts has fluctuated, the market firmly believes that the Fed will definitely cut interest rates in September; the tense situation in the Middle East has exacerbated market uncertainty, pushing up the demand for gold as a safe-haven asset; central banks' continuous gold purchases and strong demand from Chinese consumers have supported gold prices.
According to a report by Saxo Bank A/S on Monday, gold is still "supported by geopolitical risks and expectations of Fed interest rate cuts," involving tensions between Iran and Israel and Ukraine. At the same time, weekly data from the Commodity Futures Trading Commission showed that fund managers' net long bets on gold hit a five-week low.
Last week, following the global stock market's black Monday, gold also fell. London gold now has a low of $2382.7 per ounce, down 0.5% for the week. For a while, the statement that gold assets cannot hedge risk has caused controversy.
The logic behind this is that on the one hand, due to the strengthening of the US dollar and the rise in bond yields, the gold price is under pressure; on the other hand, once the stock market falls sharply, there will be a certain degree of liquidity stress, or even a liquidity crisis. At this time, even safe-haven assets will be sold off first to alleviate investors' most urgent liquidity problems.
With the stability of global capital markets over the weekend and on Monday, the liquidity issue no longer exists. The demand of institutional investors for gold remains, and the bullish forces have gathered again in the short term, and gold's recovery has appeared immediately.
Editor/Emily