Gold Market Outlook: Stagflation Concerns Drive Bullish Bias Ahead of CPI

Gold is back in focus as traders shift their attention from tariff-related headlines to deeper structural concerns about growth, inflation, and monetary policy. With labor market deterioration becoming more apparent and inflation proving sticky, a stagflation scenario is gaining traction in investor positioning. This developing environment is strengthening the bullish thesis for gold—traditionally favored during periods of low real yields, persistent price risk, and uncertain policy direction.

Spot prices are currently holding near $3,355–$3,360, while COMEX gold futures hover around $3,410, consolidating gains made following last week’s disappointing U.S. non-farm payrolls report. With rate cut bets increasing and CPI data on deck next week, the stage is set for elevated volatility in the precious metals complex.

 

Richmond Lee, CFA and Senior Market Analyst at PU Prime, commented:

“Gold prices saw initial weakness last week following market chatter that the US may impose reciprocal tariffs on imports of 1-kilogram and 100-ounce gold bars. Such measures, if implemented, could raise import costs for foreign buyers seeking gold as an inflation hedge, potentially weighing on demand. However, prices quickly stabilised after US officials clarified that these reports were misinformation, with any policy changes still under discussion.

In the broader picture, the bias for gold remains constructive. The unexpected resignation of Fed Governor Adriana Kugler, effective August 8, 2025, accelerates a vacancy that President Trump is preparing to fill with a likely dovish nominee, increasing market expectations for near-term rate cuts. The Fed board’s tilt toward easing policy weakens the dollar and indirectly strengthens gold’s case.

Geopolitical undercurrents, including renewed trade tensions, continue to bolster safe-haven demand. This week, traders should watch US CPI data closely, as a softer inflation print could accelerate market pricing for Fed easing, further supporting gold.

Overall, the medium-term outlook remains bullish, with potential rate cuts, dollar softness, and persistent geopolitical risks forming a supportive backdrop. Near-term volatility is likely, but dips toward support zones could present strategic buying opportunities for investors positioning ahead of potential monetary easing.“

Weak Jobs Data Reignites Rate Cut Expectations

July’s U.S. employment report delivered a sharp downside surprise. The economy added just 73,000 non-farm jobs, compared to consensus estimates near 150,000, and prior months were revised down by a combined 110,000. More importantly, labor force participation stalled, and wage growth showed further moderation. The unemployment rate ticked up to 4.2%, and continuing jobless claims have now risen for six consecutive weeks.

This shift in the employment trend has major implications for monetary policy. As a result of the report, traders are now pricing in an 81% chance of a Fed rate cut in September, up from roughly 58% a week ago, according to CME FedWatch data. Treasury yields have fallen, and the U.S. dollar index has weakened slightly, both of which are supportive for gold prices in the near term.

Tariffs Take a Backseat as Economic Reality Dominates

Earlier in the summer, markets were consumed by renewed tariff skirmishes between the U.S. and China. However, traders have started to view tariffs not just as geopolitical noise, but as a source of embedded inflation, particularly in core goods and services. This adds pressure to already sticky prices in housing, insurance, and healthcare.

Now, the dominant concern is no longer the tariffs themselves, but what they reveal: that inflation could remain persistently above the Fed’s 2% target, even as growth decelerates. This mix—low growth, high inflation—has reintroduced the risk of stagflation into the 2025 policy debate. For gold, that’s a fundamentally bullish setup.

CPI Data: The Next Major Catalyst

Next week’s Consumer Price Index (CPI) report, due Tuesday, August 12, is shaping up to be a major driver for gold markets. The consensus expects headline CPI to rise 0.2% month-over-month, with core CPI also up 0.3%. A downside surprise could solidify the case for imminent rate cuts, sending gold higher. Conversely, if core services inflation remains firm—especially in shelter or healthcare—it may limit the Fed’s ability to ease.

In recent cycles, gold has reacted sharply to CPI surprises. A print below consensus tends to trigger rallies of 1–2% intraday. A stronger number typically limits buying interest or prompts short-term profit taking. With positioning still light relative to historical norms, a softer CPI print could push gold through key resistance near $3,450.

Fed Caught Between Jobs and Inflation

The Federal Reserve finds itself trapped between its dual mandates: maximum employment and price stability. The labor market, once a pillar of economic resilience, is now flashing warning signs. Yet inflation is nowhere near comfortably under control. Core PCE, the Fed’s preferred inflation gauge, still sits around 3.4%, well above target.

Cutting rates with inflation still elevated carries reputational risks for the Fed. However, failing to ease as unemployment rises could lead to broader economic pain, including a potential recession. Gold, as an asset that performs well in uncertain monetary regimes, stands to benefit as this tug-of-war plays out over the next several months.

In effect, the Fed is not just data-dependent—it is cornered. If the economy weakens further while inflation resists falling, the central bank may have to ease into inflationary conditions—an environment historically supportive for gold.

Citigroup Turns Aggressively Bullish

Institutional sentiment is aligning with this evolving policy view. Citigroup recently revised its gold forecast sharply higher, now expecting spot prices to reach $3,500 over the next 3 months, up from its prior $3,300 forecast. Citi analysts cite a combination of negative real yields, softening growth data, and ongoing geopolitical tension as key drivers.

Importantly, Citi now sees stagflation not as a tail risk but as the base case, reinforcing their bullish stance on precious metals. The bank also pointed to increased physical demand from central banks and sovereign wealth funds, alongside under-positioning by Western asset managers, as supportive tailwinds.

Separately, Citi did note that a stronger recovery in growth by late 2025 could push gold below $3,000, but that scenario is considered less likely under current conditions.

Stagflation Environment Historically Supports Gold

Historically, gold has outperformed in stagflationary regimes. During the 1970s, for example, gold surged as inflation soared and economic output stagnated. The key driver is the decline in real interest rates, as inflation-adjusted yields fall or turn negative. In today’s environment, with Treasury yields pulling back and inflation staying sticky, real rates are once again compressing—a direct tailwind for gold.

Additionally, stagflation often creates currency credibility concerns. When central banks are perceived as unable to control inflation without damaging growth, investors tend to rotate into hard assets like gold and commodities. This trend appears to be returning, with gold ETF inflows recovering modestly and physical demand remaining firm in Asia and the Middle East.

Technical Picture: Support and Resistance Levels to Watch

From a technical perspective, gold is holding well-above its 200-day moving average at $3009.60 while straddling the 50-day moving average at $3343.00.

XAU/USD key levels. Source: TradingView.

A breakout above $3,452 could trigger momentum-based buying and algorithmic flows, potentially accelerating toward Citi’s $3,500 target. Conversely, a break below $3,243 would likely signal a retracement toward the May 15 swing bottom at $3120.76.

Short-term positioning in futures remains modest, suggesting room for fresh longs to enter should policy signals align.

Conclusion: Bullish Bias Holds, But CPI is the Trigger

The gold market has entered a new regime—less about trade news and more about the growing policy bind facing the Federal Reserve. Slowing jobs growth, sticky inflation, and constrained central bank options are creating the right conditions for a continued move higher.

Citigroup’s bullish upgrade reflects rising institutional confidence in gold’s role under current economic conditions. With CPI data approaching and Fed policy in a holding pattern, traders are watching for confirmation before adding size. Unless inflation reaccelerates sharply, gold’s short-term bias remains bullish, with support near $3,343 and upside potential toward the record high at $3500.20 if CPI data confirms the current path.