Gold Outlook: Back Above $4,100 — Can CPI Fuel the Rebound?

Gold rallied sharply last week. Following the US midterm elections, Democrats secured control of both chambers of Congress, prompting markets to reassess the outlook for fiscal, regulatory and foreign policy.

Expectations of tighter regulation triggered a sell-off in AI stocks, driving some safe-haven flows into US Treasuries. Oil prices also declined on expectations of easing geopolitical tensions, with both developments supporting gold.

However, Friday's strong US nonfarm payrolls report pushed expectations for a December rate hike higher again, weakening bullish momentum.

This week, attention turns to inflation. Whether US CPI and PPI data ease pressure for further rate hikes, whether deleveraging in tech stocks continues, and how the situation in the Middle East develops will collectively shape gold's next move.

Looking at the XAUUSD daily chart, gold found support around $3,870 early last week before buying interest picked up noticeably. Prices broke above $4,000 and briefly touched $4,147.

Although strong employment data weighed on gold on Friday, causing a modest pullback, prices still gained around 5% over the week, leaving the near-term technical picture significantly stronger than the previous week.

Gold climbed back above $4,100 early on Monday. A further break above last week's high of $4,147 could open the door to a move towards $4,200. On the downside, $4,000 is the key level to watch. If this psychological support gives way again, gold could retreat towards $3,940–$3,970.

A key catalyst behind last week's gold rebound was the shift in policy expectations following the US midterm elections. Democrats secured control of both the House and Senate, creating a divided-government landscape.

Markets expect the shift in congressional control could constrain the Trump administration's ability to expand fiscal spending further, easing some concerns about future Treasury supply and upward pressure on longer-term yields. The tech stock sell-off also drove some funds into US Treasuries, pushing yields lower.

Meanwhile, any further escalation of the conflict in the Middle East could face greater political constraints. Adding to this, Trump said further US military strikes against Iran would be extremely unlikely if negotiations made progress. Growing expectations of a diplomatic resolution helped push oil prices lower and ease some inflation concern

As Treasury yields and oil prices fell together, gold, a non-interest-bearing asset, gained significant support. Meanwhile, China's central bank has increased its gold holdings for 24 consecutive months, providing longer-term support for prices.

However, gold bulls have yet to shake off monetary policy pressures entirely.

US nonfarm payrolls increased by 165,000 in October, well above market expectations. Employment figures for the previous two months were revised up by a combined 84,000, while the unemployment rate fell from 4.2% to 4.1%. Strong job growth and resilient wages eased concerns about a rapid cooling of the US labour market, giving the Fed further reason to remain focused on inflation.

Following the release, the US Dollar Index and Treasury yields rebounded, while the market-implied probability of a 25-basis-point rate hike in December rose to around 80%. For non-interest-bearing gold, a resilient US economy and persistently elevated real yields could keep the opportunity cost of holding the metal high, limiting its recovery potential.

Overall, gold benefited from falling oil prices and shifting policy expectations following the midterm elections last week. However, strong nonfarm payrolls reinforced the possibility of further Fed tightening.

This week's October CPI and PPI reports, the prospect of continued selling in AI stocks, and potential geopolitical developments will help traders reassess the interest rate outlook and their gold trading decisions.

Tuesday's US CPI report could have a significant impact on gold prices. Markets expect headline CPI to rise by around 0.3% month on month and core CPI by approximately 0.2%, both slightly below their previous readings. The monthly increase in PPI, due on Friday, is also expected to moderate.

If both consumer and producer inflation come in below expectations, particularly if services inflation pressures ease, markets could scale back bets on a December rate hike. This could push the US dollar and real yields lower, creating a more favourable environment for gold's rebound to continue.

Conversely, another upside surprise in core inflation, combined with strong nonfarm payrolls, could give the Fed more reason to maintain its hawkish stance, weighing on gold.

Several Fed officials are also scheduled to speak this week. Traders will be watching whether they emphasise labour market resilience and inflation risks or adopt a more cautious tone towards further rate hikes.

Beyond interest rate expectations, liquidity risks stemming from the technology stock correction remain worth watching.

Concerns about AI investment returns, massive data centre capital expenditure and financing pressures have continued to build. Following the midterm elections, markets have also been reassessing the prospect of tighter AI regulation and data centre approval policies, contributing to a broad sell-off in technology stocks.

CoreWeave, Nebius and Applied Materials are among the companies across the AI supply chain scheduled to report earnings this week. Traders will be watching data centre financing costs, capital expenditure and future cash flow guidance to assess whether deleveraging pressures in tech stocks are likely to persist.

If AI stocks remain under pressure this week, some traders may again be forced to sell highly liquid assets such as gold to raise cash. If tech stocks stabilise, gold may be better positioned to benefit from a weaker US dollar and lower real yields.

Developments in the Middle East could also influence gold prices. There have been further reports of attacks on vessels near the Strait of Hormuz, while key differences between the US and Iran remain unresolved, leaving geopolitical risks in place.

If negotiations make meaningful progress and oil prices continue to decline, inflation and rate hike pressures could ease. Conversely, if an escalation in the conflict drives energy prices higher, gold could face competing influences from safe-haven demand and inflation pressures.

Ahead of these key events, traders will need to watch whether price breakouts can be sustained and whether Treasury yields and the US dollar provide corresponding support.