Gold trading reminder: Gold prices fluctuate at high levels, market focus shifts to US CPI data, and geopolitical situation still concerns people

In the early Asian session, spot gold fluctuated in a narrow range and is currently trading around $2,430/ounce. After a sharp rise last Thursday, gold prices stabilized on Friday, closing at $2,430.92/ounce. Investors' confidence in the Federal Reserve's interest rate cut in September has increased, and U.S. Treasury yields fell last Friday, providing some support for gold prices. The market will also pay attention to the U.S. CPI data to be released this week.

In addition, the geopolitical situation in the Middle East remains tense, which also provides safe-haven support for gold prices. Iran's acting foreign minister said on Sunday (August 11) that "legal and decisive actions will be taken against Israel."

However, gold prices fell 0.6% last week. Under the influence of investors' liquidation and large-scale stock market sell-offs, gold prices plunged 3% last Monday.

Zain Vawda, market analyst at OANDA, said: "In the medium term, the outlook for gold remains positive, and any declines are likely to be short-lived given the underlying macroeconomic factors. The U.S. unemployment data for August 8 eased concerns about a recession and boosted gold prices. In addition, comments from Federal Reserve policymakers this week also supported the view that a rate cut may be imminent."

The dollar index fell 0.1% last Friday, making gold more attractive to investors holding other currencies. The 10-year U.S. Treasury yield also fell. After a sharp market volatility last week due to concerns about the U.S. economic outlook, investors turned their attention to key inflation data on August 14 for new clues on the potential size of a rate cut in September.

The market expects the U.S. CPI to grow at an annual rate of 2.9% in July, slightly lower than 3.0% in the previous month. However, the month-on-month growth is expected to accelerate from -0.1% to 0.2%. The year-on-year growth rate of the core CPI is expected to fall from 3.3% to 3.2%, but the month-on-month growth rate will rise from 0.1% to 0.2%.

Fed policymakers are increasingly confident that inflation has cooled enough to allow rate cuts. They will take their cues on the size and timing of rate cuts from economic data rather than stock market turmoil.

"The main theme in the bond market at the beginning of the month was concerns about the state of the labor market and the future path of the Fed," said Lou Brien, market strategist at DRW Trading in Chicago. Then, "there was a lot of noise added to the market because of the yen carry trade."

This trade involves borrowing yen at a low cost to fund purchases of U.S. assets including technology stocks. However, a sharp rise in the yen against the dollar prompted traders to unwind those positions.

The interest rate-sensitive two-year Treasury yield rose 1.1 basis points to 4.055% last week, up 18 basis points last week, the biggest weekly gain since March.

The 10-year Treasury yield fell 5.3 basis points to 3.944% on Friday, up 15 basis points last week, the biggest weekly gain since April.

The Fed is expected to cut rates at its next policy meeting on Sept. 17-18, but traders are grappling with whether a 25 basis point or 50 basis point cut is more likely.

Stephen Gola, head of Treasury sales and trading at StoneX Group, said the market may be overestimating the chances of a 50 basis point cut.

"The Fed has been very cautious and slow to act, trying to stick to its policy mantra that monetary policy has long and variable lags," he said, "moving quickly when needed, but otherwise we do live in a world of 25 basis point increments, not broken."

According to the CME FedWatch Tool, traders currently see a 48.5% chance of a 50 basis point cut and a 51.5% chance of a 25 basis point cut. Last Monday, the market fully priced in a 50 basis point cut from the Fed, and traders also began speculating that the Fed could make an emergency rate cut before September.

Still, Fed policymakers said Thursday they are increasingly confident inflation has cooled enough to allow for rate cuts, and they will take clues about the size and timing of any cuts from economic data rather than from stock market turmoil.

"If anything goes wrong with the U.S. CPI data, I'm worried it will be a surprise to the headline number, but our base case is that inflation is falling," said Zachary Griffiths, senior investment-grade strategist at CreditSights. "The economy is slowing down as consumers run out of steam, excess savings are being depleted, and we're starting to see unemployment rise, which should feed into spending and inflation data."

Assuming inflation doesn't surprise to the upside, employment data, especially the unemployment rate, are likely to remain a focus for traders.

"Concerns about the state of the labor market and the pace of the Fed's actions remain and will come to the fore more clearly in the coming weeks," said DRW's Brien. "Many components of the labor market have been weakening for quite some time and will continue to weaken."

Fed Chairman Jerome Powell's remarks at the Aug. 22-24 Jackson Hole Economic Policy Symposium could also provide new clues about the path of rate cuts.

The market experienced a chaotic week last week, largely due to the unexpectedly weak US employment data in early August, which led to a global stock market crash, while demand for safe assets such as the yen and Swiss franc caused these currencies to soar to their highest point since the beginning of the year on Monday.

Investors also need to pay close attention to news related to the geopolitical situation in the Middle East.

Lebanese Hezbollah armed forces said on the 8th that they used rockets, heavy artillery shells, etc. to attack Israel's "Iron Dome" system launch platform and others. The Israeli army said that it had bombarded the rocket launch source in the direction of Lebanon. From the 8th to the early morning of the 9th, the Israeli army also launched air strikes on Hezbollah armed personnel and military buildings in many places in southern Lebanon.

Lebanese Hezbollah armed forces issued a statement late on the 9th local time that the armed forces launched a total of 9 operations against Israeli targets that day. The statement said that the armed forces repeatedly fired rockets at the headquarters of the 769th Brigade of the Israeli Army in Shemona, northern Israel, and used a large number of drones to attack the Israeli Coast Battalion Command in Liman, northwestern Israel. The Israeli Defense Forces announced on the evening of the 9th that the Israeli army attacked a launch device of the Lebanese Hezbollah armed forces in Hammam, southern Lebanon, which was loaded with rockets ready to be launched. In addition, the Israeli army also carried out air strikes and shelling of Lebanese Hezbollah armed facilities in many places in southern Lebanon.

On August 10, local time, air defense alarms sounded in many places in northern Israel. The Israeli Defense Forces confirmed that more than 10 rockets were launched from southern Lebanon to northern Israel that evening. All rockets fell in open areas and no casualties were caused. The Israeli army then shelled the relevant areas where rockets were launched in Lebanon.

According to US media reports on the 9th local time, several informed officials said that as tensions between Israel and Iran continue to escalate, the United States will allocate $3.5 billion to Israel to purchase US-made weapons and military equipment.

According to the Wall Street Journal, citing US officials on the 9th local time, the United States has warned Iran that if Iran launches a large-scale attack on Israel, the Iranian government and economy may suffer a devastating blow. The official said the United States has sent a clear message to Iran that if they launch a major retaliatory attack on Israel, the risk of escalation will be very high. If Iran launches a large-scale attack on Israel, the stability of Iran's economy and government will be at serious risk. The United States has conveyed this warning to Iran directly or through intermediaries, but did not provide specific details. At present, Iran has not responded to this.

Local time on the 10th, according to reports from the official Palestinian news agency WAFA and Al Jazeera, the Israeli army bombed a school in the Gaza Strip, killing more than 100 Palestinians and injuring dozens of people. It is reported that the school provides shelter for displaced people.

Iran's acting foreign minister said on Sunday (August 11) that "legal and decisive actions will be taken against Israel."

According to AXIOS, citing two sources, the latest assessment of the Israeli intelligence community is that Iran has decided to directly attack Israel in retaliation for the assassination of Hamas political leader Haniya. And it may launch an attack within a few days, and even take action before the Gaza hostage negotiations on August 15.

In addition, Hamas said in a statement that it has expressed its position to Egypt, Qatar and the United States, asking the relevant parties to propose a negotiation plan on the exchange of detained persons and ceasefire agreement based on the consensus reached on July 2 this year and the relevant resolutions of the Security Council, rather than restarting new negotiations. The statement also emphasized that Hamas has provided "all necessary flexibility and enthusiasm" for the conduct of negotiations.

The New York Fed's 1-year inflation forecast for July in the United States will be released on this trading day, and investors need to pay attention to it. In addition, former US President Trump accepted a heavy interview with Tesla President Musk, and investors also need to pay attention to it.