The producer price index (PPI) for final demand increased 0.2% from a month earlier after a downward revision to July’s reading, according to a Bureau of Labor Statistics report released on Thursday. Meanwhile, Initial jobless claims increased by 2,000 to 230,000 in the week ended Sept 7, according to Labor Department data released on Thursday.

Gold prices surged 1.89% yesterday, reaching a new all-time high and continuing to rise as of 2:00 p.m. (GMT+8). The surge was driven by multiple factors, including the European Central Bank's (ECB) rate cut, slight increases in jobless claims, and the PPI report. These factors have heightened expectations that the Federal Reserve will cut rates during next week’s Federal Open Market Committee (FOMC) meeting.

As of 2:00 p.m. (GMT+8), 57% of investors are betting that the Fed will cut rates by only 25 basis points, a significant drop from the 80% expectation following the release of the Consumer Price Index (CPI) two days earlier. One reason for this shift is the PPI reading, which was 0.1% lower than expected, increasing speculation of a larger rate cut next week. 

As we previously mentioned, a 25-basis-point cut seems like a wiser and more realistic move for the Fed. A 50-basis-point cut might cause market concern, as it could signal deeper issues in the economy, leading to fears of a potential recession.

Since a 25-basis-point rate cut has already been largely priced in, could we see a "sell the news" scenario next week? No one knows for certain, but the Fed could avoid this situation by providing clear guidance on future rate cuts alongside the 25-basis-point reduction. The market remains uncertain about future rate cut plans, so offering clarity could prevent negative market reactions. However, for this approach to sustain bullish momentum, the U.S. economy must avoid slipping into a recession. Otherwise, further rate cuts could be priced in prematurely, leading to sharper declines if the U.S. economy underperforms.

Looking at the daily price chart, we should be cautious: gold prices have surged above the upper Bollinger Band, indicating overbought conditions. Without significant bullish news to support further gains, a pullback in the next few days is highly probable.

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