The depth of the decline intensifies: Investors are waiting for this signal!

Gold prices are under pressure, and market focus shifts to key U.S. inflation data.

As gold prices continue to face selling pressure, investors 'eyes have turned to the upcoming key U.S. inflation data. Spot gold fell more than 2% on a weekly basis and is heading for a third consecutive week as market expectations for a possible Fed rate hike increase. The rise in U.S. Treasury yields and the strengthening of the U.S. dollar have further exacerbated the pressure on the precious metal, which does not generate interest yields. In particular, the recent release of producer price index (PPI) data has strengthened the market's expectations of the Fed's hawkish stance, thus changing the market's risk appetite. The upcoming U.S. inflation data is expected to play a key role in the Federal Reserve's interest rate decision next week and the short-term trend of gold.

Gold signals a third consecutive week of decline

Although gold rebounded slightly on Friday, its overall trend points to losses for the third consecutive week. Spot gold rose 0.2% to $4,324.79, but the limited gain was not enough to make up for losses earlier in the week. Since the beginning of this month, the cumulative decline in gold prices has exceeded 2%, and the U.S. gold contract due in December has also fallen by about 1%. Especially as market expectations for the Federal Reserve to raise interest rates rise, investors have become increasingly cautious about gold. Volatility in U.S. dollar and U.S. Treasury yields continues to put pressure on precious metals, and future economic data will be critical in determining the direction of gold.

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The current focus of market attention is on the U.S. consumer price index (CPI) in August. Ahead of a key Fed meeting next week, upcoming inflation data could play an important role in shaping expectations for interest rate policy. If data shows continued strong price pressures, it could increase expectations that the Fed will adopt a more hawkish stance on monetary policy. Stronger-than-expected inflation data will support the possibility of interest rate hikes, leading to higher Treasury yields and a stronger U.S. dollar. In this case, since gold does not generate interest income, demand for it may weaken and selling pressure will further intensify.

Federal Reserve interest rate hike expectations strengthen

The U.S. final demand producer price index (PPI) rose 0.4% month-on-month in August, prompting the market to reassess interest rate expectations. Data for July was also revised to a 0.1% month-on-month increase, exacerbating concerns about continued price pressures. After the data was released, investors 'expectations for a possible Fed rate hike rose significantly, putting selling pressure on precious metals. Spot gold fell about 2%, while markets began to pay close attention to the movements of U.S. dollar and U.S. Treasury yields.

Wael Makarem, financial market strategist at Exness, pointed out that strong inflation data may increase market expectations for the Federal Reserve to adopt tighter monetary policy. "Higher-than-expected inflation data may strengthen the possibility of further rate hikes," Makarem said.

Silver and other precious metals are also under pressure

Gold's weak performance has also spread to other precious metals. Spot silver fell 0.3% to $63.39, a weekly decline of more than 4%. Platinum fell 0.2% to US$1,773.93 and palladium fell 0.3% to US$1,278.51. On the other hand, geopolitical tensions in the Middle East have supported oil prices, with Brent crude oil and U.S. West Texas Intermediate crude oil (WTI) both remaining above $100, making inflation concerns persistent.

In terms of the short-term trend of gold, U.S. inflation data and the Federal Reserve's interest rate policy are crucial. If inflation is higher than expected, it may strengthen the possibility of raising interest rates, thereby supporting U.S. dollar and government bond yields. In this scenario, selling pressure on gold is likely to continue. Conversely, if inflation data is weaker than expected, it may lower market expectations for the Fed's hawkish policies, triggering a chance for gold to rebound.