Gold prices rebounded following the release of disappointing U.S. job openings data, which has raised expectations for a larger-than-usual Federal Reserve rate cut in September. During Wednesday’s U.S. trading session, gold was trading in the $2,490s, buoyed by the data suggesting an increased likelihood of a 0.50% rate reduction, compared to the more typical 0.25% cut. Lower interest rates generally benefit gold as they reduce the opportunity cost of holding the non-interest-bearing asset.
Gold Surges on Unexpected Decline in JOLTS Data
The Job Openings and Labor Turnover Survey (JOLTS) revealed a drop in job openings to 7.673 million in July, down from a downwardly revised 7.91 million in June. This figure fell short of economists’ expectations of 8.1 million, signaling a potential contraction in the labor market and raising concerns about a possible recession if supported by additional negative employment data. The weaker job market has contributed to a decline in the U.S. dollar across most currency pairs, which in turn has supported gold prices, as the precious metal is predominantly priced in USD.
Potential Limitations on Gold’s Gains
Despite the uptick in gold prices, a stronger-than-expected 5.0% increase in U.S. factory orders for July, following a 3.3% decline in June, could provide some support to the U.S. dollar and limit gold’s upside potential.
Further U.S. employment reports due later in the week are likely to influence the outlook for interest rates and gold. Key data releases include Thursday’s ADP Employment Change and Jobless Claims, with the main event being Friday’s U.S. Nonfarm Payrolls (NFP) report. A weaker NFP figure could bolster the case for a larger rate cut.
Geopolitical and Market Sentiment Factors
Geopolitical developments have yet to significantly impact gold demand. Russia’s recent missile and drone strikes on Ukraine and ongoing tensions in Gaza have not notably increased gold’s appeal. Additionally, broad market sentiment remains cautious following a global sell-off triggered by weak U.S. manufacturing data and concerns about a potential AI tech bubble burst.
