- Gold futures retain a bullish bias, supported by geopolitical risks and worsening US economic data.
- The Fed’s potential rate cut in September keeps gold’s momentum bullish.
- All eyes are now on US CPI data due next week for more impetus.
Gold futures remain strong against a backdrop of a complicated macro picture, driven by a combination of changing expectations on Federal Reserve policy, worsening US economic data, and geopolitical risk, which have helped fuel safe-haven demand. Although high spot prices have suppressed conventional consumer demand, futures markets are being increasingly bolstered by institutional positioning and uncertainty in general.
US demand fell 34% q/q to 124 tons as Americans record less interest in gold at the retail level. Nevertheless, the demand increased by more than two times y/y as strong ETF inflows pushed demand during H1 2025. This separation highlights the growing importance of financial investment demand in supporting future prices, despite the continued decline in demand for bars, coins, and jewelry.
In a macro perspective, gold futures were further boosted after the recent ISM services PMI data, which has fallen to 50.1 in July, the softest in more than twelve months. Since services constitute a significant portion of approximately 75% of the GDP in the US, the decline in its major parts, such as business activity and new orders, is an indicator of the economic vulnerability. What adds to this is the fact that inflationary pressures soared to levels last seen in 2022, as provoked by tariffs and the rise in input costs. Softness in labor markets further weakens the US dollar.
All of this has significantly changed the expectations in the market about the future policy path of the Federal Reserve. With a 92% likelihood now priced into fed fund futures of a rate cut at the September meeting, odds are rising of a second reduction by the October meeting.
Even a relatively dovish speech by Fed officials is being taken as justification for a turn towards monetary easing. This dynamic of a weak dollar and dropping real yields is a good tailwind in the case of gold futures.
Geopolitical uncertainties, alongside sticky inflation and particularly the global tariff risks, have continued to prop up the aspect of gold as a safe haven. Central bank and institutional interest is healthy, implying that demand for the metal will continue into the rest of 2025. This is particularly helpful to those futures traders who are standing ready to play a possible medium-term recovery and cause of the policy-led volatility.
Turning to the outlook, the most critical factor in the gold futures markets going forward will be next week, when the United States Consumer Price Index (CPI) will be released. Any close that would cast doubt on existing rate cut pricing, whereas a weak inflation reading would reverse further increase in dovish expectations and buttress talk of higher gold futures.
