Gold prices climbed sharply on Thursday, rising above US$4,100 an ounce, after weaker than expected US employment data fuelled speculation that the Federal Reserve may be forced to cut interest rates sooner than previously anticipated.
Spot gold gained more than 2%, reaching an intraday high of around US$4,130 an ounce, while silver surged more than 4%. Platinum and palladium also posted solid gains as investors returned to precious metals.
The rally gathered momentum after the latest US Nonfarm Payrolls report showed the economy added just 57,000 jobs in June, well below economists’ expectations of approximately 114,000. The disappointing figure points to a cooling labour market and has prompted investors to reassess the outlook for US monetary policy.
Although the unemployment rate edged down to 4.2% from 4.3%, the report also included downward revisions to employment figures for both April and May, reinforcing concerns that economic momentum is slowing.
The weaker employment data followed comments from Federal Reserve Chairman Kevin Warsh during the European Central Bank’s annual Forum on Central Banking in Sintra, Portugal. Warsh reiterated that the Fed would not provide forward guidance on future interest rate decisions but noted that inflation risks have eased in recent weeks while reaffirming the central bank’s commitment to returning inflation to its 2% target.
Markets interpreted the combination of softer economic data and more balanced Fed commentary as supportive for gold.
Bart Melek, Global Head of Commodity Strategy at TD Securities, said investors had been concerned the Fed Chair might adopt a more aggressive stance on interest rates.
“Warsh is staying on message, which is helping gold. Gold traders were fearing that he may come in a bit more hawkish.”
Gold has faced pressure in recent months amid speculation that the Federal Reserve could resume interest rate increases to combat persistent inflation. Higher interest rates typically weigh on non yielding assets such as gold by increasing the opportunity cost of holding bullion.
However, the latest employment figures have shifted market sentiment. Many analysts now believe that weakening labour market conditions could outweigh inflation concerns and encourage the Federal Reserve to ease monetary policy rather than tighten further.
Average hourly earnings increased by 0.3% during June, matching market expectations and suggesting wage growth remains stable without adding further inflationary pressure.
While some analysts believe additional economic data will be needed before the Federal Reserve changes course, precious metals have responded positively to signs that the US economy may be losing momentum.
For gold investors, the combination of softer employment data, easing inflation concerns and the prospect of lower interest rates has provided renewed support for bullion, pushing prices back above the psychologically important US$4,100 per ounce level.
