(July 3): Gold extended two days of gains after weak US jobs data reduced the chances of the Federal Reserve (Fed) raising interest rates this year to tackle inflation.
Bullion rose as much as 1.8% to around US$4,195 an ounce after rising 2.3% in the previous session, the most in three weeks. US hiring slowed sharply in June, data released Thursday showed, suggesting the labour market still faces challenges despite signs of strength in recent months.
The soft numbers will reduce pressure on the Fed to hike rates at its next meeting in July. Expectations of higher borrowing costs have been a headwind for non-yielding bullion.
Investors have scaled back bets on an interest rate hike, with the swap market now pricing in only an 18% likelihood at the next Fed meeting, down from a third earlier in the week.
Oil prices, a key driver of inflation in recent months, have also declined to near pre-war levels as tanker flows through the Strait of Hormuz increase. Prices have edged lower this week following positive discussions in Qatar between the US and Iran to convert their interim 60-day truce into lasting peace.
“Lower energy prices and softer job growth suggest inflationary pressures are likely to ease in the months ahead,” Bart Melek, global head of commodity strategy at TD Securities, said in a note. The reduction in Fed hike expectations likely prompted traders to cover short gold positions established earlier, along with reducing incentive to liquidate long positions, which likely explains gold’s rally over the past few days, he said.
See also: Gold drops for third day as jitters over US rate outlook worsen
“We believe gold is likely to rally only towards resistance at US$4,280 an ounce,” he said, adding that TD does not expect it to reach their target of US$5,300 until next year due to lingering inflationary pressures.
Meanwhile, a push by President Donald Trump to reshape the Fed has raised fresh concerns about its independence, which fuelled the so-called debasement trade that helped to propel gold to a record high in January. Trump and his allies are actively exploring ways to remove members of the Fed’s Board of Governors to clear the path for more of his own picks, according to people familiar with the matter.
The president reiterated to CNBC on Thursday that he plans to continue to seek the removal of Fed Governor Lisa Cook following a Supreme Court decision that allowed her to stay in her post while she challenges the administration’s efforts to oust her.
See also: Gold wavers near US$4,000 as US-Iran tensions raise inflation risk
Spot gold was up 1.4% at US$4,180.05 an ounce as of 9.44am in Singapore. Silver rose 2.1% to US$62.18 an ounce, after rising 5% in the previous three sessions. Platinum and palladium also surged. The Bloomberg Dollar Spot Index, a gauge of the US currency, was 0.1% lower after ending the previous session down 0.5%.
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