Gold prices soar to two-week high as poor US jobs data boosts Wall Street rate cut speculation

Gold prices reached their highest level in over two weeks on Friday, August 2, driven by a decline in Treasury yields and the US dollar. This drop came after data revealed that the US economy generated fewer jobs than anticipated in July, and US manufacturing activity contracted. As a result, speculation grew on forthcoming rate cuts by the US Federal Reserve.

Spot gold surged over one per cent to $2,472.59 per ounce, coming close to the record peak of $2,483.60 set on July 17. US gold futures rose 1.4 per cent to $2,516.50. The metal has seen a 3.2 per cent increase this week, marking its best performance since April. This rise can be attributed to heightened safe-haven demand amidst Middle East tensions and expectations of rate cuts, making gold more attractive to investors.

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Additionally, spot silver climbed 0.8 per cent to $28.78 per ounce, platinum went up 0.8 per cent to $966.60, while palladium saw a 1.2 per cent decrease to $894.37. All three metals were on track for weekly gains. On the Multi-Commodity Exchange (MCX), gold futures were trading 1.15 per cent lower at ₹69,445 per 10 grams.

Factors Influencing Gold Prices

– Analysts believe that lower yields, safe-haven buying, and concerns about a weakening economy contributing to lower rates and a weaker dollar are boosting the gold market. Gold has traditionally served as a hedge against geopolitical and economic risks, and reduced interest rates diminish the costs associated with holding the asset.

– US 10-year yields fell to their lowest level since December, and the US dollar hit its lowest point since March after reports showed a lower-than-expected job growth in July, leading to an increase in the unemployment rate to 4.3 per cent.

– Following comments from Fed Chair Jerome Powell about potential rate cuts in September if the US economy follows the anticipated path, market participants are now factoring in a 70 per cent likelihood of a 50-basis-point cut by the Federal Open Market Committee at its upcoming meeting in September.

The current scenario is leading to increased speculation about the possibility of multiple rate cuts this year, which is influencing the trajectory of gold prices.

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Gold Price Outlook

”Comex gold closed slightly higher at $2,480.80/oz after pulling back from its record high of $2,506.60/oz due to the US dollar’s recovery following a sharper-than-expected decline in the US manufacturing PMI, which dropped to an eight-month low of 46.8 in July from 48.5 in June,” stated Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.

The heightened risks of a broader conflict in the Middle East are bolstering gold’s appeal as a safe haven, with market participants closely watching Iran’s response to Israel’s recent attack. This has led Comex Gold to approach record-high levels amid growing expectations of multiple rate cuts this year,”” she added.

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“Gold prices surged by over ₹600, reaching ₹70,555, with Comex gold supporting the buying trend at $2,460, up by more than $17. The rise is driven by renewed fears of a US recession following higher jobless claims…The broad trend for gold remains positive,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.