Gold Price Eyes $4,000 as Fed Cuts and Inflation Fears Collide

Gold (XAU) is breaking out as inflation remains hot and the Fed prepares to cut rates. The CPI and core inflation figures remain above the Fed’s target, while unemployment and jobless claims are increasing. This mix of inflation and a weakening labour market adds pressure on the Fed to ease policy. At the same time, the U.S. dollar is weakening, bond yields are falling, and political uncertainty is shaking confidence in official data.

Moreover, the central banks are dumping Treasuries and buying gold. These macro shifts are fuelling safe-haven demand. This article provides a breakdown of the macroeconomic drivers, policy shifts, technical patterns, and global risks fuelling gold’s next major rally.

Inflation Data Keeps Pressure on Fed and Supports Gold

The US inflation is increasing again. The headline CPI increased by 0.382% in August, while core CPI increased by 0.345%, as shown in the chart below.

On the other hand, the trimmed mean CPI hit 3.2%, and sticky price inflation reached 2.9%. These numbers show that inflation is sticky and still rising faster than the Fed’s 2% target.

Moreover, the inflation expectations remain high, particularly due to Trump’s proposed tariffs. The chart below shows that inflation expectations for September have reached 3.9%.

On the other hand, the Producer Price Index (PPI) dropped in August, which helped calm fears that rising inflation would stop the Fed from cutting interest rates at its September 16–17 meeting. The rising inflation expectations due to proposed tariffs and the dovish Fed response indicate a bullish case for gold.

Rising Unemployment and Jobless Claims Signal a Weaker Labor Market

The unemployment rate is rising, as shown by the upward trend in the chart below, reaching 4.3% in August 2025.

Moreover, initial jobless claims climbed to 263,000 in early September, while continued claims are also increasing, as seen in the chart below. The labor market appears to be cooling more rapidly than headline figures suggest. This consistent increase in unemployment and jobless claims challenges President Trump’s assertion that the economy is experiencing strong growth.

The Bureau of Labor Statistics (BLS) revised job creation down by 911,000 for the 12 months to March 2025. That’s a major shift. The average monthly job gain is now just 75,000, well below the ADP private sector average of 150,000. This slowdown gives the Fed more room to ease. It also boosts safe-haven demand for gold.

Political Interference and Real Interest Rates Add to Gold’s Bullish Case

President Trump’s recent appointment of a new BLS commissioner has sparked debate over the potential impact on the perceived independence of economic data. This shift may affect investor confidence and increase demand for gold as a safe-haven asset.

Meanwhile, Fed Chair Jerome Powell faces a complex policy environment. If he keeps rates unchanged, it could draw political criticism, while aggressive cuts might risk higher inflation. Therefore, a cautious approach, such as a 25 basis point cut in September, may help balance these competing pressures.

The chart below shows the real Federal Funds Rate, calculated as the effective Fed Funds Rate minus the CPI, from 1955 to 2025. A positive real rate indicates a tight monetary policy, while a negative rate signals a stimulative stance. As of the latest data, the real rate stands at +1.4%, which suggests a mildly restrictive environment. Historically, negative real rates were seen during the 1970s, post-2008, and the COVID-19 period.

These periods coincided with rising inflation and surging gold prices, as investors moved away from cash and sought inflation hedges like gold. Although the current rate is positive, a Fed pivot to rate cuts will lower the real rate and fuel the rally in gold. This explains why expectations of upcoming rate cuts, combined with persistent inflation and Fed uncertainty, are already lifting gold prices.

Falling Yields and Fragile Stock Rally Reinforce Safe-Haven Appeal

On the other hand, the long-term Treasury yields have dropped. The 10-year yield dropped to 4.0%, with strong speculative buying. A break below this level could send yields to 3.5%, further supporting gold. On the other hand, the stocks are also rallying. The Dow Jones 30 hit a new high above 46,000, and the S&P 500 is testing support near 6,500.

Bitcoin (BTC) is also surging, reflecting expectations of increased liquidity. However, elevated stock valuations make the rally fragile. If earnings disappoint, equities could drop sharply, which will further boost gold’s appeal as a safe-haven asset.

Central Banks Dump Treasuries and Double Down on Gold

In a historic shift, foreign central banks now hold more gold than U.S. Treasuries. A June 2025 survey revealed that 95% of central banks plan to increase their gold reserves. The chart below confirms this reversal as foreign central banks hold more gold than U.S. Treasuries for the first time since 1996.

The impact of this shift on gold prices is strongly bullish. As more countries diversify away from the dollar and Treasuries, demand for gold increases. This structural change provides long-term support for gold beyond short-term inflation or rate cycles.

It also reflects a deeper loss of confidence in U.S. economic leadership. With geopolitical risks rising and fiscal imbalances widening, gold is reclaiming its role as the preferred global reserve asset.

US Dollar Weakness Adds Fuel to the Gold Breakout Momentum

The U.S. Dollar Index is testing key support in the 96–97 range. The trend remains strongly bearish, signalling further downside. A break below the long-term support at 96 could trigger another sharp decline in the dollar to the 90 level. This weakness may fuel a renewed rally in gold prices, with an initial target of $4,000.

The dollar’s decline reflects expectations of easier monetary policy, rising political risks, and waning global confidence in U.S. debt.

Technical Breakout Above $3,500 Signals Gold Surge to $4,000

The long-term outlook for spot gold remains strongly bullish, as the price continues to trade within a well-established uptrend. The consolidation phase from August 2020 to February 2024 formed an inverted head-and-shoulders pattern, a classic bullish signal. This pattern broke to the upside in March 2024, when prices surged above the $3,000 mark. The move confirmed a strong breakout despite overbought conditions on the monthly chart.

From April to August 2025, gold entered a sideways consolidation, producing four consecutive inside-bar candles on the monthly chart. This tight price compression signaled an imminent explosive move. In September 2025, spot gold broke decisively above the $3,500 zone, confirming the breakout and setting the stage for a fresh rally.

The next major resistance lies near $4,000, which now becomes the primary target for bulls. This breakout suggests that gold may soon reach new record highs, supported by strong technical momentum and macroeconomic tailwinds.

The strong breakout in spot gold above $3,500 is also visible on the weekly chart, which highlights an ascending triangle formation during the April to August 2025 consolidation. This pattern signals a bullish continuation, suggesting that prices are likely to extend their move higher toward the $4,000 region.

Interestingly, a similar ascending triangle formed between April and August 2024, which preceded the rally that pushed gold to the $3,500 level. The repetition of this pattern reinforces the strength of the current breakout. The September 2025 breakout now points to sustained bullish momentum, with spot gold poised to accelerate further to $4,000.

Risk Factors

A major risk to the gold outlook lies in policy missteps from the Federal Reserve. If the Fed cuts rates too aggressively while inflation remains elevated, it could spark a second wave of inflation. This would force the Fed to reverse course and hike rates again, which could trigger volatility in gold prices. On the other hand, if the Fed delays cuts despite weakening labour data, it could shake investor confidence and increase market stress, making gold more volatile in the short term.

Another key risk stems from rising concerns over the credibility of US economic data. The recent replacement of the BLS commissioner with a politically aligned figure has raised alarm over the independence of reported labour statistics. If investors lose faith in the accuracy of economic indicators, uncertainty will increase. While this might increase demand for gold, it also risks sharp sentiment swings depending on how markets interpret future data releases.

The rallies in the Dow and S&P 500 remain vulnerable due to overextended valuations. If corporate earnings fall short or inflation rises unexpectedly, stocks could decline sharply. While this often boosts gold, a broad market correction may trigger liquidity-driven selling across all assets. One example was seen in March 2020. During such panic sell-offs, gold’s correlation with risk assets can rise temporarily, causing short-term volatility despite a strong long-term bullish outlook.

Why Gold Remains on Track to Hit $4,000 Despite Market Uncertainty

Gold is set to continue its upward momentum as inflation remains high, with CPI and trimmed mean data staying above the Fed’s 2% target. Moreover, unemployment is rising, jobless claims are increasing, and job creation has been revised downward. These labour trends increase pressure on the Fed to ease policy.

Meanwhile, central banks are buying gold, the US dollar is weakening, and political interference is raising concerns about data credibility. These factors point to higher gold prices. The breakout above $3,500 signals a likely move toward $4,000 in the coming weeks.

The key drivers behind gold’s strength are:

• CPI and core inflation remain above 3%.
• Jobless claims and unemployment are rising.
• Fed is expected to cut rates by 25 bps in September.
• Real Fed Funds Rate is still mildly restrictive.
• Political concerns over BLS appointments erode data trust.
• Central banks prefer gold over Treasuries for the first time since 1996.
• 10-year Treasury yield drops to 4.0%, signalling easing.
• The U.S. Dollar Index is near a critical juncture and is looking for a breakdown..
• Dow and S&P 500 are overvalued and vulnerable.
• Bitcoin rally signals rising liquidity expectations.

With inflation elevated, labour data weakening, and global trust in U.S. institutions fading, gold remains a preferred hedge. Therefore, investors can consider buying gold on any dips to target $4,000 in the next few weeks.