Gold prices have held near $4,379 after the July Consumer Price Index data showed a slight decrease in inflation. The data has cooled rate hike fears, keeping gold's nine-percent monthly rally intact.
The July CPI report showed a 3.4% year-over-year increase, down from 3.5% in June, while core inflation remained at 2.5%. This has led to decreased expectations of a September rate hike from the Federal Reserve.
US Economic Data
The Producer Price Index was flat in July, with goods prices declining and services costs increasing. Gold's relationship with interest rates is inverse, making it more attractive when rate expectations fall.
With market expectations of a September FOMC rate hike dropping, the opportunity cost of holding gold has decreased. Treasury yields and dollar strength have softened in response to the inflation data, making gold cheaper for international buyers and supporting demand.
Market Outlook
The next major data point traders will be watching is the August jobs report, followed by signals from Fed officials ahead of the September FOMC meeting. Consensus has formed around the 'pause' thesis, with the risk being that any deviation from this expectation will move markets more violently than the underlying data warrants.