Gold Shines Brighter: Prices Ascend as Dollar and Bond Yields Dip Post U.S. Jobs Data

On June 30, gold prices saw their first gain of the week as the U.S. dollar and bond yields dropped following the weaker-than-expected U.S. nonfarm payrolls report showing an uncertain economy. Yet again, market opinions are now questioning whether we will actually see a pause in interest rate hikes beyond July. Each time the economy shows a brightening horizon, a new storm cloud rolls in, allowing gold to gain yet again.

By July 6, spot gold increased 0.8% to $1,926.54 per ounce, with bullion up 0.4% for the week. Gold futures also settled higher at $1.932.50, representing a 0.9% increase. Prices closed the week on the up again, with spot gold increasing to $1,932.50 by Friday.

So what exactly caused this increase? The U.S. labor data displayed unemployment rates well below expectations.

For the last seven months in a row, the figures have slowly climbed at a steady pace, displaying a form of economic recovery. During certain months, the report even exceeded expectations in a positive way until this release.

With the latest U.S. job data release, the marketplace now must question whether the economy is anywhere near recovery. After hitting a seven-month high, the figures quickly retreated, disappointing analyst expectations. In doing so, treasury yield and the U.S. dollar dropped, allowing gold to become the attractive safe-haven asset of choice yet again.

The ten-year U.S. treasury yields fell from what was becoming an over four-month peak, and the U.S. dollar plummeted by over 0.9%, hitting a two-week low. With these drops, gold gained much-needed momentum as traders sought other options.

Most investors firmly held their beliefs last month that the Federal Reserve would raise interest rates in July, the primary question relies on what will follow. Many are now skeptical over whether the Federal Reserve will continue hiking rates following July’s meeting. Reduced market opinions over future rates create a more positive buyer landscape for gold.

“Gold remains stubbornly bid — trading higher even before the number. Today’s report has given bulls some relief, at least short term,” Tai Wong, the Head of Precious Metals Sales and Trading at Manfra Tordella & Brookes Inc., explained.

“Gold should hold above $1,910, but the real test is $1,950-60 level where the 100- and 200-day moving averages are converging. The report wasn’t soft enough to warrant that kind of rally today,” Wong continued to explain.

Rising interest rates impact gold prices more than many other factors. The Federal Reserve has a tight grip over gold performance levels, even if it’s unintentional. Rising interest rates increase investor activity in non-safe-haven assets, though a drop in interest rate hikes, or even the thought of fewer hikes, allows gold to rise again.

While the unemployment figure in June may have retreated, other key insights showed the potential for a strong labor market. For example, private payrolls increased during the month, and the unemployment filing rates for benefits only saw a moderate increase.

When looking at the report as a whole, one still may see an economy moving in the positive direction, one that doesn’t require further interest rate hikes. It all depends on the perspective. Because of this lack of a clear answer, the marketplace has no clue how the Federal Reserve will respond to this report.

On another note, other precious metals saw slight rises following the data releases. Silver increased by an impressive 1.5% to $23.08 per ounce. At the same time, platinum rose by 1% to $910.77, and palladium increased to $1,248.66, following a 0.6% rise.

When all precious metals increase, the marketplace sentiment on safe-haven assets becomes clear. People are uncertain of future Federal Reserve actions and are opting for safe-haven assets in the meantime. Experts still predict a positive future for gold and other precious metals throughout 2023 and onward, and we’re seeing that play out on a weekly basis.

“Now is the time to prepare your portfolio,” Nitesh Shah, Wisdom Tree’s head of commodity research, explained. “The time to move in is not at the time of the risk event but is before the risk is realized.”

Shah predicts that by the first quarter of 2024, gold will reach $2,285 per ounce. With that in mind, he urges investors to buy in before the economy reaches “a good-sector recession to counter the impact of the structural change in the labor market pushing up service prices.”

As always, investors should consult their advisors before making any financial decisions.

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