Gold’s third straight session of gains reflects the market’s ongoing repricing of US rate expectations following Friday’s weaker than expected jobs report, which has materially dented what had been firm bets on a rate hike next month. Lower rate expectations are supportive for bullion given gold pays no yield, and that dynamic is likely to remain the dominant driver into this week’s inflation data. With CPI due Wednesday and PPI on Thursday, those prints now carry outsized weight for gold positioning, since a hotter than expected reading could quickly revive rate hike bets and cap the current rally, while a soft print would likely extend it further.
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Gold’s rally is really a bet that the soft jobs report was the start of a dovish shift, one this week’s inflation data will either confirm or unwind.
Summary:
- Spot gold rose around 0.5% to roughly $4,400 an ounce, its highest level since June 5.
- The move follows a weak July jobs report that led markets to scale back expectations of a Federal Reserve rate hike next month.
- The US economy lost around 23,000 jobs in July, while the unemployment rate eased slightly to 4.1% from June’s 4.2%.
- Lower rate expectations support gold given the metal yields no interest.
- The Fed held rates steady at its July meeting, with three officials dissenting in favour of a hike.
- US CPI data is due Wednesday, with PPI data following on Thursday.
Gold extended its gains for a third consecutive session on Tuesday, climbing to its highest level in more than two months as investors turned their attention to upcoming US inflation data for clues on the path of interest rates.
Spot gold rose around 0.5% to trade near $4,400 an ounce, its strongest level since early June. The move builds on a rally that began following Friday’s weaker than expected US jobs report, which showed the economy shed roughly 23,000 positions in July even as the unemployment rate ticked down slightly to 4.1% from June’s 4.2%. The soft payrolls figure prompted markets to significantly scale back what had been firm expectations for a Federal Reserve rate hike at its upcoming meeting.
Lower interest rate expectations tend to support gold prices, since the metal offers no yield of its own and becomes comparatively more attractive to hold when rates are lower or expected to fall. That dynamic has underpinned bullion’s advance over the past several sessions as traders reassess the likely path of monetary policy.
The Fed left rates unchanged at its July meeting, though three officials dissented in favour of raising them, underscoring that the central bank’s internal debate on the appropriate policy stance remains far from settled.
Attention now turns to two key inflation releases this week that could shape how durable gold’s rally proves to be. US consumer price data is due Wednesday, followed by producer price data on Thursday. Either print carries the potential to shift rate expectations meaningfully in either direction, with a hotter than expected reading likely to revive hike bets and pressure gold, while a softer outcome would likely reinforce the dovish narrative currently supporting the metal’s advance toward multi month highs.
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Pic via Wall Street Journal:
This article was written by Eamonn Sheridan at investinglive.com.
