Song Xiqing: When Will Gold Take Off Again? CPI and PCE Have Quietly Been Signaling

When can gold still rise? This is most directly understood using data. Let’s first talk about the Federal Reserve’s interest rates, CPI, and PCE—that is, the relationship between inflation and gold.

Under normal circumstances, it goes like this: when inflation is high, the Fed raises interest rates; once the increases are in place and inflation is brought down to a reasonable range, rate hikes stop, and the market begins to expect rate cuts. At this point, gold starts to rise. Then if inflation stays at a low level and the Fed begins genuine “preventive rate cuts,” gold gets a boost with accelerated upside.

But recently, CPI and PCE have turned upward again. Inflation has risen again, and as a result, the market has started worrying about further rate hikes. This sudden reversal directly dragged gold down.

So when can gold rise again? It’s very clear—it depends on when inflation can fall again, meaning when CPI and PCE turn back downward and the Fed returns to a rate-cut pathway.

You might ask: when will CPI and PCE turn downward? Honestly, people worldwide who can know the answer are very few. Ordinary people can only make guesses based on current conditions.

This time, the spike in inflation is mainly caused by a surge in oil prices. Look at recent oil prices—actually, in May they retreated in the short term. Also, oil prices have a lag in how they transmit to inflation, so as long as oil prices don’t rise sharply again, there’s a good chance that CPI and PCE will show a downward turning point within the next one or two months.

What’s more, if—as Trump said—an online peace agreement is really signed on Monday, oil prices would fall sharply, and the inflation turning point would arrive faster and more aggressively.

In fact, the core CPI in May was already below expectations. We can roughly infer that the May core PCE announced at the end of the month will also come in below expectations. This already hints that May’s inflation data is very likely to be a short-term peak. If core PCE can decline for two consecutive months, expectations for rate cuts will return.

If you also factor in the end of the World Cup, non-farm employment may cool further, and if inflation continues to trend lower through July and August, the market would very likely start pricing in a September rate cut.

Of course, until rate-cut expectations truly come back, no matter the situation in the Middle East, or next week’s FOMC meeting’s dot plot, or Kevin Waugh’s speech—so long as it’s even slightly hawkish, the gold price still has to be adjusted downward. There’s really no way around that.

So, putting it simply: if rate-cut expectations don’t return, gold can’t rise. And for rate-cut expectations to return, inflation has to fall—and employment also needs to cool down. The data you should watch are CPI, PCE, and non-farm figures.

My core view is: the rate-cut cycle hasn’t ended, and there’s still plenty of room ahead. Once rate cuts restart, gold’s next round of gains will exceed the increases of the past two years.
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