Gold - The Data Was Exactly as Expected, So Why Did Gold Jump?

Gold reached $4,450 earlier today, its highest level in two months, and has since pulled back to around $4,380. Since 5 August, the metal has gained close to 10%, so some profit-taking after a run like that is normal.

What makes this rally strange is the news behind it. The US inflation report came in exactly as forecast. Annual inflation eased to 3.4%, and core inflation to 2.5%. Both matched what economists expected, line by line. A report that surprises nobody should not move a market this much.

So why did gold jump? Three reasons.

First, traders had prepared for a worse number. Oil rose about 21% in July, and many expected that to push prices higher. It did not appear in the data. When a fear does not arrive, traders close the positions they built around it, and that alone moves prices.

Second, the chance of a September rate hike fell again, from about 44% to 38%. The dollar and government bond yields both eased. Gold pays no interest, so it gains whenever expected rates fall.

Third, central banks keep buying. China's central bank added more gold to its reserves in July than in any month since October 2023.

One thing to keep in mind. The Fed has not changed its position. It held rates on 29 July, and three of the twelve voting members wanted a hike instead. Inflation is still above the 2% target, and oil remains a risk.

Today brings the producer price report, which measures what companies charge each other. It often shows where consumer prices go next. Another soft number would support gold. A hot one would remind traders that the rate-hike case is not dead.

Gold key levels: 

• Resistance: 4,450, then 4,590 
• Support: 4,370, then 4,260  

Watching: today's producer price report, the US dollar, the Fed meeting on 15-16 September.

By Born2trade market research department

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