Gold (XAU/USD) is trading around $2,500 per troy ounce on Monday, following a volatile week that saw the precious metal briefly hit all-time highs. This movement comes in the wake of a mixed US Nonfarm Payrolls (NFP) report released on Friday.
Gold’s Initial Reaction to NFP Data
Gold prices initially surged after the NFP report indicated that the US economy added fewer jobs than anticipated in August and that previous months’ job figures were revised downward. This data suggested a potential softening of the labor market and increased the likelihood of a larger 0.50% Federal Reserve (Fed) interest rate cut in September, which typically benefits gold by lowering the opportunity cost of holding non-yielding assets.
Market Correction
Despite the initial gains, gold prices failed to maintain their upward trajectory. The Unemployment Rate fell to 4.2% from the expected 4.3%, and wage growth for the month was 0.4%, surpassing the forecasted 0.3%. These factors indicated a more resilient labor market and rising wage inflation, leading to a decrease in market expectations for a 0.50% rate cut. Consequently, the probability of such a cut fell from around 40% to 30%, causing gold to retreat to around $2,500 and further dip into the $2,490s on Monday.
Fed Commentary and Future Outlook
Gold remains supported by ongoing concerns about the US economic outlook. Fed Governor Christopher Waller suggested that a rate cut could help maintain economic momentum and address signs of labor market softening. He also mentioned the possibility of “front-loading cuts,” keeping the option of a 0.50% reduction open.
The upcoming US Consumer Price Index (CPI) and Producer Price Index (PPI) data are expected to provide further insights into the interest rate outlook. Analysts are divided on the impact of these inflation metrics, with some, like Deutsche Bank’s Jim Reid, emphasizing that employment data might currently be more influential than inflation in shaping Fed policy.
Geopolitical Developments
Geopolitical tensions continue to influence gold prices. The ongoing conflict between Israel and Hamas has intensified following a shooting incident at a West Bank border crossing. In Ukraine, Russia’s advance towards the strategic city of Pokrovsk could escalate regional tensions and increase demand for gold as a safe-haven asset. Additionally, the Central Bank of Poland has been actively acquiring gold since the onset of the conflict, according to World Gold Council data.
China’s Gold Reserves
Data from the People’s Bank of China (PBoC) reveal that the bank has not increased its gold reserves, maintaining its buying halt since May.
