[Bullish for Precious Metals]
Non-farm Payrolls Surprise Triggers Recession Trades, Rate-Hike Expectations Cool Sharply
The US July non-farm payrolls data released on August 7 came in far below expectations. Non-farm payrolls unexpectedly fell by 23,000, well below the market's expected increase of 80,000, while May-June figures were revised down by a combined 103,000. The unemployment rate held at 4.1%. The pronounced softening in the labor market directly drove a shift in market trading logic from "sticky inflation" to "recession trades." Market expectations for a US Fed interest rate hike in September cooled sharply. After the release, the US dollar index plunged, the 10-year US Treasury yield pulled back quickly, and spot gold surged more than 3% on the day, climbing from $4,240/oz to above $4,370.
Mild Pullback in CPI Confirms Downward Inflation Trend, Policy Tightening Pressure Eases at the Margin
The US July CPI data released on August 12 came in fully in line with expectations: CPI up 3.4% YoY (prior 3.5%), the smallest increase since March; up 0.1% MoM, returning to positive growth; core CPI up 2.5% YoY (prior 2.6%), and up 0.2% MoM. The inflation data continued its mild pullback, further weakening the case for a US Fed interest rate hike in September, and the market slightly scaled back its rate-hike bets. After the data, spot gold briefly spiked, approaching the $4,450/oz mark and hitting a two-month high.
Central Bank Gold Buying Trend Accelerates, PBOC's Monthly Buying Hits a New High for This Cycle
The global central bank gold-buying trend continued to strengthen, providing structural support for gold prices. PBOC data released on August 7 showed that gold reserves reached 76.08 million oz at end-July, an increase of 640,000 oz MoM (about 19.9 mt), marking the 21st consecutive month of increases and the highest monthly purchase volume since gold buying resumed in November 2024; the pace of gold buying further accelerated. Global central banks made net gold purchases of 289 mt in Q2 2026, up 62% YoY, the highest on record for the same period. Sustained official-sector buying has reinforced the reserve diversification case for gold, and downside room is effectively constrained.
US Dollar and US Treasury Yields Both Pull Back, Real Rate Pressure Eases
Weighed down by both the non-farm payrolls surprise and the mild CPI pullback, the US dollar index pulled back this week from around 99.8 to move sideways in the 99.5-100 range, significantly weaker than its earlier highs. The 10-year US Treasury yield pulled back from 4.70% to around 4.67%, and lower real rates eased the carrying cost of non-interest-bearing precious metals. A weaker US dollar also made US-dollar-denominated gold more attractive for global allocation, attracting buying interest from the sidelines.
[Bearish for Precious Metals]
The CPI data was neutral and did not cool more than expected, while core services inflation remained sticky.
Although July CPI continued to pull back YoY, the data was fully in line with expectations and did not show any sharper-than-expected cooling. Core CPI rebounded to 0.2% MoM, and core services inflation excluding housing warmed overall, indicating that inflation pressure beyond energy prices persisted. Expectations for a US Fed interest rate hike in September cooled significantly but were not fully reversed; the market was still pricing in around a 45% probability of a hike, and policy uncertainty continued to cap the upside room for precious metals.
The oil price rebound pushed up second-round inflation risk, and the rate-hike narrative could waver.
The stalemate in US-Iran negotiations and the attack in the Strait of Hormuz pushed Brent crude oil from $83 to $89-90 per barrel. The rebound in energy prices may slow the pace of the pullback in inflation. If oil prices continue to rise, they could push inflation expectations up again and in turn reinforce the logic for the US Fed to keep interest rates high and hike again, forming a negative transmission of "oil price increases - rising inflation expectations - stronger rate hike expectations - gold under pressure."
Gold prices posted large short-term gains, with technical correction and profit-taking pressure rising.
Spot gold had gained nearly 10% cumulatively since August, quickly rallying from below $4,000 to above $4,400. The short-term rally was large and fast-paced. Technically, there was a need to work off overbought conditions, and with some bulls taking profits, gold prices could face periodic pullback pressure. After the CPI data release, gold briefly plunged $50, reflecting an intensifying tug-of-war between longs and shorts and a notable rise in volatility.
The US dollar index stabilized and rebounded, creating some near-term pressure.
After the CPI data came in line with expectations, the US dollar index stabilized and edged higher, closing at 100.014 on August 12 and rebounding somewhat from the low after the nonfarm payrolls report. The dollar found support near the 100 level. If US data strengthened again or non-US currencies weakened, the dollar could strengthen again, creating indirect pressure on dollar-denominated precious metals.
[Macro Summary]
This week, driven by both a surprisingly weak nonfarm payrolls report and a mild pullback in CPI, spot gold rallied from around $4,240/oz to above $4,440/oz, hitting a two-month high and posting a cumulative weekly gain of about 4%. The macro front was broadly bullish. The notable softness in the labor market, together with a mild pullback in inflation, sharply cooled expectations for a US Fed interest rate hike in September. The US dollar and US Treasury yields both pulled back. Along with accelerating central bank gold purchases and recurring geopolitical tensions, these factors pushed precious metals higher. However, caution is needed over the second-round inflation risk from the oil price rebound, US Treasury fiscal supply pressure, and technical pullback pressure after outsized short-term gains. Going forward, closely monitor August PPI data, US Fed officials' remarks, and developments in the US-Iran situation.
