Gold rallies Friday on easing jobs numbers that boosted Fed rate cut hopes. Gold futures are now firmly over the $2500 mark.
Nonfarm payrolls grew by just 114,000 in July, per the department of Labor, missing the Dow Jones estimate of 185,000 and below June’s downwardly revised estimate of 179,000. The unemployment rate crept up to 4.3%, its highest since October 2021. In response, gold prices hit their highest in over two weeks and Treasury yields and the dollar declined.
Fed Chairman Jerome Powell signaled Wednesday that officials are likely to begin rate reductions in September, unless progress combatting inflation stalls. The Bank of England on Thursday cut interest rates for the first time in more than four years, reducing its benchmark to 5%. The move was widely seen as a sign of things to come among global central banks.
UBS forecast this week that gold would rise to $2,600 an ounce by the end of the year, calling the yellow metal “the diversifier of choice.”
Front-month gold futures rose 0.3% Thursday to settle at $2,480.80 an ounce on Comex, and the most-active December contract gained 2.2% in the first four days of the week. Bullion increased 5.7% in July, its biggest monthly gain since March. Gold fell 0.3% in June and gained 1.9% in May. The metal rose 13% in 2023. The December contract is currently up $36.60 (+1.48%) an ounce to $2517.40 and the DG spot price is $2452.10.
The Fed, which concluded a two-day meeting Wednesday, has kept interest rates at 5.25% to 5.50% for a year after raising them by 5.25 percentage points since March 2022 to rein in inflation. Friday’s jobs report is a critical piece of information because the Fed closely watches both inflation and labor market data when determining monetary policy. Rate cuts are considered bullish for gold, which becomes a more attractive alternate investment when rates go down.
The CME FedWatch Tool shows all of the investors tracked are betting that the Fed will cut rates in September, with 67.5% projecting a 25 basis point cut and 29.5% anticipating a 50 basis point cut.
Powell said Wednesday that a September rate cut was “on the table.” But he noted that he “would not like to see material further cooling in the labor market.”
The ADP Employment Report came out Wednesday, a few hours before the Fed rate decision, and showed that private payrolls increased by just 122,000 in July, the slowest pace since January. It was below both economists’ estimates for the month and the upwardly revised 155,000 for June. Weekly U.S. initial jobless claims for last week came in Thursday at the highest level in almost a year. Applications for new unemployment benefits rose 14,000 to 249,000, Labor Department data showed.
UBS noted the surge in central bank buying of bullion after Russia’s invasion of Ukraine and cited World Gold Council data showing that central banks have bought more than 2,000 tons of gold in the last two years, the fastest pace in history. The strong central bank buying, pending U.S. interest rate cuts and “recovering exchange-traded fund demand should push the gold price higher,” UBS said. The metal “can also be an effective hedge against concerns about geopolitical polarization, the U.S. fiscal deficit, inflation, or a weaker U.S. dollar,” it said.
September silver futures lost 1.6% Thursday to settle at $28.48 an ounce on Comex, and the front-month contract increased 1.6% in the first four days of the week. Silver dropped 2.1% in July after falling 2.9% in June and surging 14% in May. It ticked up 0.2% in 2023. The September contract is currently up $0.458 (+1.61%) an ounce to $28.935 and the DG spot price is $28.70.
Spot palladium retreated 3.6% Thursday to $914.50 an ounce and is up 0.4% so far this week. Palladium fell 4.3% in July after rallying 8.1% in June and declining 5.1% in May. Palladium plummeted 38% last year.The DG spot price is currently down $6.10 an ounce to $908.50.
Spot platinum declined 1.5% Thursday to $968.10 an ounce and gained 2.8% in the first four days of the week. Platinum lost 2.1% in July after falling 3.7% in June and advancing 10% in May. Platinum dropped 6.8% in 2023. The DG spot price is currently up $3.50 an ounce to $971.10.
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