Spot gold prices experienced a choppy session during Tuesday's European trading hours, with the latest quote at $4,373.70 per ounce, down 0.62%. The precious metal opened at $4,402.53, reached a high of $4,434.62, and a low of $4,371.94. This comes after prices briefly touched a level not seen since early June, climbing to $4,435.20, and are on track for a third consecutive day of gains.

Last Friday's disappointing U.S. non-farm payrolls report, which showed a loss of approximately 23,000 jobs in July and a slight dip in the unemployment rate from 4.2% to 4.1%, prompted a significant downward revision in market expectations for a Federal Reserve rate hike next month. This decline in rate hike expectations has provided a crucial support base for gold. Market attention has now shifted to upcoming U.S. inflation data this week, specifically the Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday, which are expected to have a decisive impact on the short-term direction of gold prices.

The July non-farm payrolls report showed the economy shed about 23,000 jobs, significantly missing market expectations, even as the unemployment rate edged down from 4.2% to 4.1%. This data has largely eroded the previously firm bets on a rate hike, with market confidence in further Fed tightening clearly shaken. Notably, while the Fed maintained rates at its July meeting, three officials dissented in favor of a hike, signaling that the internal debate over policy stance is far from over and hawkish voices remain present. In the wake of the latest data, the market now prices the probability of a 25-basis-point rate hike in September at around 50%, a sharp drop from pre-payrolls levels. For gold, the significant reduction in rate hike expectations directly lowers the opportunity cost of holding the non-yielding asset, thereby enhancing its relative appeal and providing additional support for prices.

Gold's Technical Trajectory and Driving Logic

Spot gold has rallied approximately 3.5% from its low last week, reaching a two-month high. This upward move is entirely driven by the repricing of rate expectations. There has been no fundamental shift in gold's own supply, demand, or geopolitical factors. Instead, the market's assessment of the U.S. monetary policy path is tilting from "hawkish" towards "neutral-dovish." Lower rate expectations are naturally beneficial for gold. Since gold pays no interest, when markets anticipate lower or falling rates, the opportunity cost of holding this non-yielding asset decreases, making it more attractive. This logic has consistently supported gold's rally over the past few sessions. In other words, the current price strength is more a direct reflection of the revised expectations for Fed policy than a fundamental improvement in gold itself. If rate expectations were to turn hawkish again, the sustainability of this rally would face a challenge.

Inflation Data: The Key Variable for Short-Term Direction

Market focus has shifted to two critical inflation readings due this week: the CPI on Wednesday and the PPI on Thursday. These data points are crucial for gold positioning. If the inflation data comes in higher than expected, it would quickly stoke rate hike bets again, causing a rebound in rate expectations that could suppress gold's current rally, potentially testing support near $4,300. Conversely, if the data is lower than expected or moderate, it would reinforce expectations of rate cuts or a pause, extending the current bullish narrative and pushing gold towards the $4,500 level or higher.

Outlook for the Coming Sessions

Gold is currently at a critical juncture for direction setting. The metal's rally is essentially a bet on a core judgment: that last week's weak payroll data marks the beginning of a potential shift toward looser Fed policy. Whether this judgment holds will directly determine gold's next move. The inflation data due this week will serve as the key litmus test for this logic. It will either confirm the policy shift signal suggested by the weak employment data or completely reverse it. If inflation prints are moderate, market expectations for the Fed to maintain or even move towards easing will strengthen, allowing gold to extend its current rally towards the $4,500 level. Conversely, if inflation significantly exceeds expectations, rate hike bets will quickly re-emerge, the support gained from the recent decline in rate expectations will rapidly dissipate, and gold could face considerable downward pressure. Therefore, the short-term trajectory of gold is highly dependent on how this week's inflation data ultimately defines the monetary policy path. Spot gold is on track for a third consecutive day of gains, having touched a two-month high of $4,435.20. Last week's weak payroll report reshaped Fed rate hike expectations, providing key support. While the Fed held rates steady at its July meeting, internal divisions are clear, leaving the policy direction uncertain. This week's CPI and PPI data will be the key variable in validating the sustainability of gold's rally. Moderate inflation data would reinforce lower rate expectations, driving prices higher, while stronger-than-expected data could reignite rate hike bets, capping or reversing the current uptrend. Gold's short-term direction hinges on how inflation data influences the market's repricing of the Fed's policy path. Spot gold is currently trading down at $4,373.70, a decline of 0.62%, with a high of $4,434.62 and a low of $4,371.94. Initial support is seen near the $4,370 or $4,340 levels, while resistance is expected around $4,430 or $4,470.