Gold Rises as the Fed Turns Less Hawkish, But Oil and Inflation Remain Key Risks
Gold is gaining momentum as weaker-than-expected US economic data and fading expectations of a September Fed rate hike weigh on the dollar and keep Bond Yields from rising further. As a result, the opportunity cost of holding gold has declined, providing additional support for the precious metal.
However, the outlook for gold is not straightforward. Oil prices remain elevated, while uncertainty surrounding the Strait of Hormuz remains a key risk that could push Inflation Expectations and Bond Yields higher again.
The broader market narrative is therefore caught between a “less hawkish Fed” and “inflation that has not gone away.”
Here’s a closer look at the key drivers 👇
1️⃣ Fed | Markets Are Increasingly Pricing in a Fed Pause
Recent US economic data has increasingly pointed in the same direction. July CPI rose just 0.1% MoM, while annual CPI slowed from 3.5% to 3.4%. Core CPI also eased from 2.6% to 2.5% YoY.
July PPI was unchanged at 0.0% MoM, suggesting that inflationary pressure from the producer side has not accelerated as much as markets had feared.
Meanwhile, July Retail Sales fell 0.6% MoM, marking the first decline in nine months, while Core Retail Sales dropped 0.4%, pointing to a clear slowdown in consumer spending.
Combined with a decline of 23,000 jobs in July Nonfarm Payrolls, the Macro picture is beginning to form a single narrative:
Softer Labor → Weaker Consumption → No acceleration in Inflation → Less need for the Fed to rush into further rate hikes
Markets have therefore reduced the probability of a September Fed rate hike to around 30%, down from roughly 47% a month earlier. This has become one of the key drivers supporting gold.
📌 Markets are increasingly pricing in a Fed Pause, reducing the pressure on gold from the interest-rate side.
2️⃣ Inflation | The Fed Still Has Limited Room to Ease
Although CPI has moderated, headline inflation at 3.4% YoY remains well above the Fed’s 2% target, while the latest PCE reading remains around 3.7% YoY.
This distinction is important: markets are reducing the probability of a rate hike, but that does not mean they are immediately pricing in rate cuts.
This means the current Bull Case for gold is based more on a Less Hawkish Fed than a fully Dovish Fed.
If Bond Yields or the dollar turn higher again, gold could still come under pressure.
📌 Gold is benefiting from a less hawkish Fed, but this is not yet a clear signal that the market has entered a full rate-cut cycle.
3️⃣ Oil and the Strait of Hormuz | The Biggest Risk to Gold’s Bull Case
Oil remains one of the most important variables to watch. Brent has climbed toward $89 per barrel as US-Iran negotiations have stalled and shipping activity through the Strait of Hormuz has fallen sharply.
This creates a two-sided impact for gold.
On the positive side: rising geopolitical risk could increase Safe Haven Demand.
On the negative side: higher oil prices → higher Inflation Expectations → higher Bond Yields → a potentially more hawkish Fed.
The best environment for gold, therefore, may not be an escalation in conflict. Instead, it would be a scenario where the Dollar and Yields weaken while geopolitical risks remain high enough to support Safe Haven Demand, but not severe enough to trigger a major oil price spike.
📌 Gold needs enough risk to generate Safe Haven Demand, but not enough to push inflation and Yields sharply higher.
4️⃣ US Stocks | Not Yet Risk-Off, But the Market Is Watching Different Variables
US equities have not entered a full Risk-Off environment. The S&P 500 continues to benefit from corporate earnings and the AI theme, while softer economic data has reduced concerns about further Fed rate hikes.
However, the key variables are gradually shifting from the Fed toward Long-term Yields + Oil + Growth Slowdown.
This is why stocks and gold can rise at the same time in the current environment. Markets are interpreting softer economic data more as a Soft Landing / Goldilocks and Fed Pause scenario than an imminent recession.
However, if economic data continues to weaken and markets begin pricing in a Hard Landing, the picture could change quickly. Stocks could come under selling pressure while gold attracts stronger Safe Haven Flows.
📌 Stocks still have room to rise if the economy slows through a Soft Landing, but if the slowdown turns into a Hard Landing, gold could become the bigger beneficiary.
📊 Market Overview
The market is shifting from asking “Will the Fed raise rates?” to a broader question: “How will the economy slow, and could inflation return?”
💰 Gold is benefiting from a less hawkish Fed.
💵 The Dollar is weakening as Fed Pause expectations grow.
🛢️ Oil remains a risk to Inflation Expectations.
📈 US Stocks remain supported by AI and corporate earnings, but Growth Slowdown is becoming a bigger concern.
📌 This Week’s Takeaway
Gold is benefiting from fading expectations of a Fed rate hike, but the Bull Case is not yet complete. Inflation remains above target, while oil prices remain a key variable that could quickly change the market outlook.
The ideal environment for gold would be slower economic growth, contained inflation, weaker Dollar and Yields, and geopolitical risks that remain elevated without triggering a major spike in oil prices.
💡 For gold, the key narrative right now is “Less Hawkish Fed,” not “Dovish Fed.” That distinction will determine how much further gold’s Upside can run.
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Disclaimer: This content is for informational purposes only and is not investment advice. Investing involves risk. Please do your own research before making any investment decisions.
