On Wednesday (August 14th), in the morning session of the Asian market, spot gold fluctuated narrowly and is currently trading around $2463.748 per ounce. The gold price held steady on Tuesday. Despite some profit taking, it still hovered near the historical high set in July and closed at 2464.67 dollars/ounce. As the US producer price data consolidated the hope of the Federal Reserve to cut interest rates in September, the yields of US dollars and treasury bond bonds fell; Concerns about the geopolitical situation also provide support for gold prices.

The dollar index fell 0.4% on Tuesday, making gold more attractive to holders of other currencies, while the 10-year treasury bond bond yield slipped to a one week low.

Tuesday's data showed that the US producer price increase in July was lower than expected, indicating that inflation continues to slow down.

Atlanta Fed President Bostic said on Tuesday that recent economic data has given him "more confidence" that the Fed can bring inflation back to its 2% target, but he hopes to see "more data" before being prepared to support a rate cut. He stated that the risk between inflation and the job market is closer to equilibrium, but he hopes to ensure that the Federal Reserve avoids premature interest rate cuts, so as not to have to raise rates later when inflation accelerates again. However, if the economy develops as he expected, interest rates will decrease by the end of this year.

Traders are now looking forward to the release of the US Consumer Price Index (CPI) data for July on Wednesday and the retail sales data on Thursday. Data can provide further direction for the next policy measures of the Federal Reserve.

Despite recent profit taking, ongoing geopolitical tensions, recent market volatility, and expectations of interest rate cuts are still driving investors towards safe haven assets, "said Alex Ebkarian, Chief Operating Officer of Allegiance Gold

According to the FedWatch tool of the Chicago Mercantile Exchange, traders believe that the likelihood of the Federal Reserve cutting interest rates by 50 basis points in September is about 54%. In a low interest rate environment, gold is often more attractive.

After the assassination of Hamas leader Haniyeh in Iran last month, concerns escalated that the Gaza conflict could escalate into a broader Middle East war.

However, according to The Times of Israel, three Iranian officials stated on Tuesday that Iran's attack on Israel may be postponed as negotiations on the release of Gaza hostages and ceasefire agreement are expected later this week. This indicates that if the agreement is successful, Iran may not retaliate directly against Israel.

According to Israeli media reports, if Iran or Hezbollah launches an attack, the meeting to resume ceasefire negotiations on Thursday may not be held.

On the battlefield between Russia and Ukraine, the Russian military retaliated against the Ukrainian army on Tuesday with missiles, drones, and airstrikes. A senior commander said that these actions prevented the Ukrainian army from advancing. Previously, the Ukrainian army launched the largest attack on Russian sovereign territory since the beginning of the war.

In addition to the US CPI data, investors need to continue to pay attention to the relevant news of the geopolitical situation and pay attention to the New Zealand interest rate decision on this trading day.

US producer inflation slows down, strengthens hope for September interest rate cut

The lower than expected increase in producer prices in the United States in July and the largest decline in service costs in nearly a year and a half indicate a weakening of pricing power for businesses, which proves that inflationary pressures are weakening and strengthens hopes for a rate cut in September.

The report released by the US Department of Labor on Tuesday also showed that most of the factors used to calculate the Personal Consumption Expenditures (PCE) price index performed well. PCE is an inflation indicator tracked by the Federal Reserve for the purpose of formulating monetary policy. The easing of inflation allows the Federal Reserve to pay more attention to the labor market.

The unemployment rate soared to a nearly three-year high of 4.3% in July, exacerbating concerns in financial markets about an economic recession, but most economists do not take it seriously.

Christopher Rupkey, Chief Economist of FWDBONDS, said, "The cooling of producer price increases this month is good news for the Federal Reserve's action to combat inflation, but there has been no PPI deflation, so Federal Reserve decision-makers do not need to make hasty judgments and cut interest rates in advance because the economy is on a downward trend.

The Bureau of Labor Statistics of the US Department of Labor reported that the Producer Price Index (PPI) for final demand increased by 0.1% month on month in July and 0.2% in June. Economists previously predicted a 0.2% increase. PPI increased by 2.2% year-on-year in July and 2.7% in June.

The service price decreased by 0.2% month on month, the largest decline since March 2023, and increased by 0.4% in June. The decline in service prices reflects a 1.3% decrease in trade service prices, which measures the profit changes of wholesalers and retailers. This is the largest price drop in this category since February 2015. The trade profit margin increased by 1.4% in June.

The wholesale profit margin of machinery and vehicles decreased by 4.1%.

A survey released by the National Federation of Independent Business (NFIB) on Tuesday also showed a weakening of pricing power among businesses, with a significant decrease in the proportion of small businesses that raised their average selling prices and planned price increases in July.

According to PPI data, economists' estimates of the core PCE price index for July range from a month on month increase of 0.14% to 0.2%. After the release of the July Consumer Price Index (CPI) on Wednesday, these estimates may change. The core PCE price index increased by 0.2% month on month in June.

The financial market expects the Federal Reserve to cut interest rates by 25 basis points in September, and will take the same action again in November and December. The possibility of a 50 basis point interest rate cut next month cannot be ruled out, but this largely depends on the performance of the August employment report.

Excluding food, energy, and trade, the core PPI increased by 0.3% month on month, compared to a 0.1% increase in June. The core PPI increased by 3.3% year-on-year, with a 3.2% increase in June.

Although there may be losses in the transmission from producer prices to consumer prices, and the duration may vary, today's report is entirely within the scope of allowing the Federal Reserve to continue to focus primarily on the labor market in its upcoming policy decisions, "said Michael Hanson, an economist at JPMorgan Chase. (End)

The US dollar and US Treasury bonds hit a one week low

Affected by PPI data, the US dollar index fell 0.5% on Tuesday to 102.61, with a intraday low of 102.55, the lowest since August 5th.

The latest PPI release is undoubtedly good news for the market, "said Helen Given, Deputy Director of Trading at Monex USA. Traders see this as a prelude to the US CPI, as the market has been preparing for CPI since last month's data showed a real decline in prices, as it could be a volatile event

US Treasury yields decline, good producer inflation data strengthens hope for September interest rate cut

US treasury bond bond yields also fell to near one week lows on Tuesday.

CPI and PPI are not highly correlated, and the market's reaction to this data is calm, "said Vail Hartman, a US interest rate strategist at BMO Capital Markets in New York. PPI should not cause the Federal Reserve to deviate from its track, as some of the data is included in the calculation of the Personal Consumption Expenditures (PCE) price index, which the Federal Reserve relies most on to guide policy.

Observing PPI data, especially some factors included in the core PCE calculation, I don't think there is anything really concerning, and from a broader perspective, I believe these data are consistent with the notion of inflation falling

Kim Rupert, Managing Director of Fixed Income at Action Economics in San Francisco, said, "The market hopes that these data confirm that the economy is slowing down, which will also provide more reasons for the Federal Reserve to cut interest rates.

The futures market expects a probability of a 50 basis point rate cut by the Federal Reserve in September to be about 54%, and a probability of a 25 basis point rate cut to be 46%, which is completely opposite to the forecast made later on Monday. Traders expect the Federal Reserve to cut interest rates by a full percentage point this year.

The yield of US 10-year treasury bond bonds fell 5.5 basis points to 3.854% on Tuesday, about 4 basis points lower than that before the PPI was announced.

The yield of two-year treasury bond, which usually changes in line with interest rate expectations, fell 7.1 basis points on Tuesday to 3.9439%, most of which was recorded after the report was released.

Russia counterattacks Ukrainian army invading Kursk

On Tuesday, the Russian military retaliated against the Ukrainian military with missiles, drones, and airstrikes. A senior commander said that these actions prevented the Ukrainian military from advancing. Previously, the Ukrainian army launched the largest attack on Russian sovereign territory since the beginning of the war.

A week ago, thousands of Ukrainian soldiers broke through the border and attacked Russia. Russian President Putin stated that the purpose of this attack was to enhance Kiev's negotiating position before possible peace talks and slow down the Russian military's progress.

The Ukrainian raid forced Moscow to evacuate nearly 200000 people while deploying reserve forces.

Russian battlefield bloggers reported on the intense fighting on the Kursk front as Ukrainian forces attempted to expand their control, but they said Russia was mobilizing soldiers and heavy weapons and repelling multiple Ukrainian attacks.

The Russian military claimed that during the week-long battle, they destroyed a total of 35 Ukrainian tanks, 31 armored personnel carriers, 18 infantry fighting vehicles, and 179 other armored vehicles.

The enemy's reckless rampage has been stopped, "said Major General Apti Alaudinov, commander of the Akhmat Special Forces in Chechnya. The enemy has realized that their planned blitzkrieg was not successful

It is currently unclear which party controls the city of Sudzha in Russia, where Russia transports natural gas from West Siberia through Ukraine to Slovakia and other EU countries. Gazprom announced on Tuesday that it is still delivering natural gas to Ukraine through Suja.

Alexei Smirnov, acting governor of Kursk Oblast, said on Monday that Ukraine controls 28 villages in the region, with an invasion depth of about 12 kilometers and a width of about 40 kilometers. Ukraine claims to control 1000 square kilometers of land in Russia, which is more than twice the number of Russian territories.

Putin told officials at his residence in Novo Ogaliovo on the outskirts of Moscow that Russia will push back Ukrainian troops and that the Russian military is accelerating its advance in other areas of the front line.

However, the occupation of Russian territory by foreign forces still makes the Russian military and Putin feel embarrassed. The invasion of Ukraine was the most severe foreign military invasion since Nazi Germany invaded Russia in June 1941.

Ukrainian President Zelensky told Ukrainians in a nighttime speech that Russia's actions are crucial to Ukraine's security, and that Russia has repeatedly used the Kursk region to launch strikes against Ukraine.

But Ukraine's transfer of troops to Kursk may leave other areas on the front line with a shortage of troops while facing the continuous advance of the Russian army. The Russian military is much larger in size and may attempt to surround the Ukrainian military.

Ukraine's Western allies have stated that they did not receive prior warning of Ukraine's attack on Russia. Western countries have been trying their best to avoid the escalation of the Russia Ukraine war into a direct confrontation between Russia and NATO led by the United States.

Putin said that the West is using Ukraine to engage in a proxy war with Russia, and the Ukrainian military's invasion of the border is an attempt to disrupt domestic stability in Russia.

Daily chart of spot gold