Gold (XAUUSD) and Silver Set to Surge as Inflation Rises and US Dollar Weakens

The U.S. consumer prices increased by 0.4% in August, as shown in the chart below. This was the largest monthly gain since January. Moreover, food and shelter costs also surged, pushing inflation higher than expected. However, a sharp increase in jobless claims last week signals weakness in the labour market. Despite the inflation jump, the Fed is still expected to cut rates at the September 16–17 meeting.

The combination of rising prices and slowing job growth raises concerns about stagflation. This scenario typically boosts demand for safe-haven assets. Investors may seek protection as inflation increases and economic growth falters. These conditions have historically supported higher gold (XAUUSD) prices.

August may mark the start of a new wave of inflation. Furthermore, businesses are passing on costs from Trump’s tariffs, driving prices higher. If this trend continues, then inflation could remain elevated into Q4. Consequently, persistent inflation combined with weakening growth could trigger a sustained gold rally.

Despite the strong growth in CPI data, the PPI showed negative growth, as shown in the chart below. This divergence increases uncertainty around the Fed’s inflation outlook. Despite this uncertainty, markets see a rate cut as likely. Any confirmation of stagflation ahead would strengthen gold’s bullish case.

Gold Technical Analysis

XAUUSD Daily Chart – Price in Surge Mode

The daily chart for spot gold shows that the price is trading within a strong parabolic move, targeting a surge toward the $4,000 region. The breakout from the 4-month consolidation range between $3,250 and $3,500 has triggered a powerful upward move. This $4,000 target is further supported by the resistance line of an ascending broadening wedge pattern, which suggests the rally could accelerate quickly.

This is also confirmed by the daily chart below, which shows the formation of an ascending triangle pattern. The measurement of the ascending triangle indicates that a breakout above the $3,500 level targets the $4,000 region.

XAUUSD 4-Hour Chart – Positive Price Development

The 4-hour chart for spot gold also shows that prices have emerged from a strong bullish formation during the 4-month consolidation. Therefore, the breakout above $3,500 indicates that gold will remain in a strong upward trend in the coming weeks.

Silver Technical Analysis

XAGUSD Daily Chart – Strong Bullish Momentum

The daily chart for spot silver (XAG) shows that prices have formed a strong bullish price action above the $35.00 region. The price has developed a bullish hammer candle at the 50-day SMA, indicating strong and sustainable upward momentum.

Extreme overbought conditions triggered the recent correction from the $41.50 level. However, this pullback is likely a healthy retracement and should be viewed as a buying opportunity for a potential rally toward the $43.00 region.

XAGUSD 4-Hour Chart – Ascending Broadening Wedge

The 4-hour chart for spot silver shows the formation of an ascending broadening wedge pattern above the $39.40 level. It also reveals a strong bullish setup with an inverted head and shoulders pattern formation. The target of the ascending broadening wedge pattern remains around the $42.00 area for spot silver.

US Dollar Index Technical Analysis

US Dollar Daily – Breakout from Bear Flag

The daily chart for the US Dollar Index shows that the index has broken below the bear flag pattern and subsequently retested the breakdown area. Moreover, the retest formed a strong bearish candle near the 50-day SMA, thereby reinforcing the downward bias.

As a result, this bearish momentum suggests that the US dollar is preparing for the next significant decline. Finally, a break below the 96.50 level would likely trigger a sharp drop toward the 90.00 region. A break above 100.50 is required to erase the negative price action.

US Dollar 4-Hour Chart – Negative Price Action

The 4-hour chart for the US Dollar Index also shows strong bearish price action during the one-month consolidation phase. The failure to break above the 100.50 resistance level has led to a consolidation range between 97.20 and 98.60, forming a clear bearish structure in the USD Index.