Gold's Two-Front Rally Faces Its Midweek Inflation Test

Gold hits $4,422 as soft US jobs report cuts rate hike odds and China stockpiles bullion at fastest pace since Oct 2023, but overbought risks loom.

The yellow metal has found itself at the center of a rare convergence: one of the world's largest central banks is quietly stockpiling bullion at its fastest clip in nearly two years, while a shockingly soft US jobs report has forced traders to rip up their interest-rate forecasts. The result is a market that has climbed more than 7 percent in a single week, yet remains acutely vulnerable to the next piece of data.

Spot gold was changing hands at $4,422.30 an ounce on Tuesday, having touched a two-month high above $4,400 earlier in the session. The latest leg higher extends a run that began last Friday, when the July nonfarm payrolls report landed with a thud: the US economy shed 23,000 jobs, against analyst expectations for a gain of 80,000. The Bureau of Labor Statistics also revised June's figure sharply lower, from 57,000 to just 20,000, dragging the twelve-month moving average of job creation down to roughly 34,000 per month.

That revision matters more than the headline miss. It suggests the labor market has been cooling for months, not just in a single month's snapshot. Traders responded by repricing the Federal Reserve's September 16 meeting with remarkable speed. Fed funds futures now imply just a 44 percent probability of a rate hike, down from 67 percent a week earlier. The dollar felt the shift too, with the USD index sliding to its lowest level since mid-June near 99.40 before stabilizing at the start of the week.

Beijing's Quiet Accumulation

While the US labor market has been the proximate trigger, the rally has a second, less visible engine. China's central bank added roughly 20 tonnes of gold to its reserves in July, accelerating from about 15 tonnes the prior month — the largest monthly increase since October 2023. Institutional investors in the country are following suit, building long positions in gold-backed assets as a hedge against volatility at Chinese technology exchanges. Gold-backed ETFs in China are now enjoying their longest streak of inflows in months.

The two forces are complementary. Central banks provide the physical foundation, while investment flows supply the momentum. India, by contrast, is conspicuous by its absence from the buying spree. Net gold imports fell 23 percent year-on-year in the second quarter to 98.1 tonnes, weighed down by higher import duties, though domestic prices still rallied Tuesday in sympathy with the international bullion market.

The Technical Picture

The price action has been accompanied by unusually heavy volume in the futures market — Friday marked one of the strongest trading days in four months. Physically backed funds have joined in as well, with gold ETFs worldwide absorbing $3 billion in inflows during July.

Momentum indicators tell a nuanced story. The relative strength index sits at 67.4, approaching overbought territory without having crossed into it. Gold currently trades about 2.54 percent below its 200-day moving average but well above the 50-day average — a configuration that suggests the recent surge is a short-term recovery rather than a return to January's record highs.

Wednesday's Verdict

All eyes now turn to Wednesday's consumer price index release for July, with producer prices and retail sales following on Thursday and Friday. Economists expect headline CPI to rise 0.1 percent month-on-month, with the core rate at 0.2 percent. A softer-than-expected print would intensify pressure on the Fed to end its pause sooner; a hotter one could revive rate-hike fears and knock the wind out of gold's sails.

ING, for its part, continues to expect an extended period of Fed inaction despite the weak jobs data. Between now and the September meeting, the market must digest one more payrolls report, two inflation readings, and the central bank's Jackson Hole symposium.

Geopolitics, meanwhile, has receded into the background. Tensions over the Strait of Hormuz pushed oil prices higher recently, and Iran's claims of imminent talks with Oman — while denying direct negotiations with Washington — keep the situation fluid. But with President Trump saying the US would handle the matter "low-key," the commodity's near-term direction increasingly hinges on the data calendar.

The setup is straightforward: gold has climbed on the back of a broken labor market narrative and steady central bank accumulation. Whether it holds those gains depends on whether Wednesday's inflation numbers confirm the slowdown — or complicate it.