Gold prices set for first weekly rise in a month as investors scale back Fed rate hike bets

LONDON – Gold is poised for its first weekly advance in five weeks, surging on Friday as surprisingly weak U.S. labor market data prompted investors to dramatically scale back bets on an aggressive Federal Reserve interest rate hike in September. The rally provides a much-needed reprieve for a metal that has been under severe pressure for most of the year.

Spot gold prices climbed 1.4% Friday morning to trade around $4,182.28 an ounce. The move places the precious metal on track for a weekly gain of approximately 2.3%, a stark reversal of fortune after a punishing second quarter.

This week's rebound is a direct response to a cooling U.S. economy, which shifts the calculus for the Federal Reserve. For months, the central bank’s hawkish stance has been a primary headwind for gold, but signs of economic weakness may now give policymakers reason to pause.

A Significant Reversal

The gains mark a significant turnaround for gold, which has struggled against a backdrop of rising interest rates, a firm U.S. dollar, and persistent inflation fears stemming from geopolitical conflict.

• A Brutal Quarter: The three months to June marked gold's worst quarterly performance in 13 years, as investors priced in a relentless series of rate hikes from global central banks.
• Discount from Highs: Even with this week's rally, gold is still trading at a substantial 22% discount from the all-time high of over $5,300 an ounce it reached in January. That peak was driven by a flight to safety following the outbreak of the U.S.-Iran war.
• Breaking the Streak: A positive close this week would snap a four-week losing streak, the longest such stretch since late last year, potentially signaling a bottoming process for the beleaguered asset.

The Catalyst: A Tepid Jobs Report

The primary driver for gold's newfound strength was Thursday's U.S. nonfarm payrolls report, which fell significantly short of expectations and pointed to a clear loss of momentum in the American labor market.

Disappointing Labor Data

The report from the Labor Department provided a trifecta of weak data points that immediately caught the market's attention.

• June Hiring: The U.S. economy added just 57,000 jobs in June, less than half the 115,000 that economists surveyed by Dow Jones had forecast.
• Downward Revisions: Adding to the concern, May's job creation figure was revised down to 129,000, indicating that the slowdown began earlier than previously thought.
• Slowing Trend: The data confirms a decelerating trend in hiring, a key metric the Federal Reserve watches to gauge the health of the economy and the impact of its monetary policy.

Shifting Fed Expectations

The jobs data triggered an immediate and sharp repricing of interest rate expectations, a key determinant for gold prices. As a non-yielding asset, gold becomes more attractive to investors when interest rates are low or expected to fall, as the opportunity cost of holding it decreases.

The FedWatch Indicator

The CME Group's FedWatch tool, which analyzes futures pricing to gauge market sentiment on monetary policy, showed a decisive shift away from a September rate hike.

• Post-Data Probability: Following the jobs report, markets are now pricing in a 53.5% chance that the Fed will raise its benchmark rate by at least a quarter-point at its September meeting.
• Pre-Data Probability: Prior to the release, that probability stood significantly higher at around 65%, demonstrating how a single data point can reshape market consensus.
• July Outlook: The Fed is widely expected to hold rates steady at its upcoming July meeting, making the September decision the next major battleground for bulls and bears.

The Broader Context: A Challenging Year

This week's rally comes after a difficult period for gold, which has been hit by a confluence of powerful macroeconomic forces. The year began with a major geopolitical shock that, while initially bullish for gold, ultimately sowed the seeds of its decline.

• Geopolitical Shockwave: The outbreak of the U.S.-Iran war in early January triggered a massive safe-haven rush, propelling gold to its record high above $5,300.
• Inflationary Aftermath: The conflict and subsequent sanctions disrupted global supply chains and energy markets, fueling a surge in inflation. This forced the Federal Reserve and other major central banks to adopt an aggressive, hawkish stance to bring prices under control.
• A Firmer Dollar: The Fed's aggressive rate-hiking campaign strengthened the U.S. dollar, creating another major headwind. A stronger greenback makes dollar-denominated gold more expensive for buyers using other currencies, dampening international demand.

Precious Metals Rise in Unison

The optimism spread across the precious metals complex on Friday, with silver posting even more impressive gains than gold.

• Silver's Surge: Spot silver leaped 2.9% to $62.77 an ounce. This puts the metal on pace for a weekly gain of around 6.7%, far outperforming gold.
• Futures Follow: Silver futures for August delivery reflected similar bullish sentiment, adding 3.5% on an intraday basis. Silver often acts as a high-beta play on gold, rising faster during rallies and falling more sharply during downturns.

The Road Ahead

While this week has provided a welcome boost for gold investors, the path forward will be determined by incoming economic data and central bank rhetoric.

• Focus on Inflation: The next major test will be the upcoming Consumer Price Index (CPI) report. A cooler-than-expected inflation reading would bolster the case for a less aggressive Fed and could provide further fuel for gold's rally.
• Fed Commentary: Traders will meticulously parse every speech and statement from Federal Reserve officials for clues about their reaction to the slowing jobs market and their intentions for the September meeting.
• The Dollar's Direction: The U.S. Dollar Index will remain a critical variable. For gold's rally to have legs, the recent pullback in the dollar will likely need to continue.
• Geopolitical Watch: The situation between the U.S. and Iran remains a crucial background element. Any escalation or de-escalation could have immediate and significant impacts on safe-haven flows and energy prices, creating further volatility for gold.