Gold (XAU) Price Forecast: Will Softer CPI Data Trigger a Gold Rally Next Week?

Gold Market Recap: Disappointment Over Economic Data Drives Losses

Gold prices ended the week lower as the market’s focus shifted to U.S. economic data and its implications for Federal Reserve policy. While the U.S. dollar and Treasury yields actually declined, gold’s retreat was largely driven by disappointment that the week’s data did not bolster the case for a more aggressive rate cut. XAU/USD finished down 0.23% for the week, with traders now looking ahead to next week’s inflation data to clarify the Fed’s policy direction.

Last week, XAU/USD settled at $2497.56, down $5.84 or -0.23%.

Disappointment Over Economic Data Pressures Gold

The primary driver of gold’s losses this week was the market’s disappointment in the mixed economic data, which failed to provide a strong enough case for the Federal Reserve to cut rates by 50 basis points at its upcoming September meeting. While the labor market showed signs of softening, the data was not weak enough to push the Fed toward a more aggressive easing stance. This lack of clarity around the Fed’s next move left traders cautious and led to profit-taking in gold​​.

Equity Sell-Off Adds to Liquidation of Gold

In addition to the disappointment over economic data, a sharp sell-off in the equity markets, particularly in the tech sector, also contributed to gold’s decline. Investors facing steep losses in equities liquidated profitable gold positions to cover margin calls, putting additional pressure on the precious metal. Gold, which had been performing well earlier in the year, became a target for selling as investors sought to raise cash amid the broader market turmoil​.

Mixed Labor Market Data Fails to Fuel Aggressive Rate Cut Expectations

The U.S. Non-Farm Payrolls (NFP) report for August showed a gain of 142,000 jobs, weaker than the expected 160,000, but still better than July’s revised figure of 89,000. The unemployment rate edged down to 4.2%, in line with forecasts, suggesting that while the labor market is softening, it is not deteriorating quickly enough to prompt a larger 50-basis-point rate cut​. Private payrolls, however, came in much lower at 99,000 compared to the forecast of 140,000, adding further ambiguity to the outlook​. This mix of data has kept expectations tilted towards a 25-basis-point rate cut, which was seen as insufficient to provide strong upward momentum for gold prices​.

CPI Inflation Data in Focus Next Week

Traders are now turning their attention to next week’s August CPI inflation report, scheduled for release on Wednesday. Economists expect headline inflation to ease to 2.6% YoY, down from 2.9%, while core inflation is projected to hold steady at 3.2% YoY​. A weaker inflation report could increase the chances of a more aggressive rate cut, offering support to gold. However, if inflation remains sticky, it could limit the Federal Reserve’s scope for larger cuts, keeping pressure on gold prices.

Market Forecast: A Cautious Outlook for Gold

Looking ahead, gold prices are likely to remain volatile, with next week’s CPI data playing a crucial role in determining the metal’s direction. If inflation data comes in softer than expected, gold could see a rebound as markets price in a more substantial rate cut.

However, if inflation remains firm, gold may continue to face selling pressure as the market adjusts to a more cautious Federal Reserve stance. Traders should brace for volatility as economic data continues to shape expectations around the Fed’s upcoming decision​.