Gold is back in the spotlight, with the precious metal targeting the US$4,500 level as investors increase exposure to gold ETFs and markets prepare for the latest US inflation figures.
After a powerful recovery last week, gold has moved back towards levels not seen since July, supported by a surprisingly weak US employment report, falling bond yields and a softer US dollar.
For Australian investors, the move is even more significant. Gold is currently trading at approximately AUD $6,140 per troy ounce, although the Australian-dollar price moves continuously as both the international gold price and the Australian dollar fluctuate.
The latest rally has reinforced the view that gold’s longer-term bullish trend may not be finished.
Weak US jobs report gives gold a boost
The catalyst for the latest rally was the US July employment report.
According to the Bureau of Labor Statistics, the US economy lost 23,000 jobs in July, dramatically undershooting economists’ expectations for an increase of approximately 85,000 jobs.
It was the weakest monthly employment result since February, when the US economy recorded a much larger loss of jobs.
The significance for gold is straightforward: a weakening labour market reduces the pressure on the Federal Reserve to maintain an aggressive interest-rate policy.
When economic growth and employment begin to weaken, markets generally start to anticipate that central banks may have more room to cut or hold interest rates rather than increase them.
That is particularly important for gold because bullion does not pay interest.
When interest rates and bond yields are high, investors have a greater incentive to hold interest-bearing assets. When yields fall, the opportunity cost of holding gold decreases.
The latest employment report therefore provided a major boost to the gold market.
Bond yields fall as rate expectations change
US Treasury yields also moved lower following the jobs data.
The 10-year Treasury yield fell towards 4.65%, while yields on shorter-dated securities also declined.
Falling yields can be supportive for gold because they reduce the relative attractiveness of government bonds compared with non-yielding assets.
At the same time, the US Dollar Index weakened significantly from its recent highs.
This is another important factor for gold.
Because gold is primarily priced in US dollars, a weaker dollar generally makes bullion cheaper for buyers using other currencies and can increase international demand.
For Australian investors, however, the relationship is more complicated because a stronger Australian dollar can partially offset gains in the US-dollar gold price.
This is why Australian investors should always look at the AUD gold price, rather than relying solely on the US-dollar headline.
Gold rebounds 10% from its recent low
Gold’s recovery has been substantial.
The metal climbed to approximately US$4,367 an ounce, representing a gain of around 10% from its recent year-to-date low.
The move has taken gold back above several important technical levels and has changed market sentiment considerably.
Just weeks ago, investors were questioning whether the precious metal could hold the US$4,000 area.
Now attention has shifted towards the possibility of a move towards US$4,500.
That would represent another significant milestone for the gold market.
For Australian investors, a move to US$4,500 could potentially push the local gold price substantially higher, depending on where the Australian dollar is trading at the time.
US inflation is the next major test
The next major catalyst for gold will be the latest US Consumer Price Index (CPI) report.
The inflation figures are particularly important because the Federal Reserve’s future interest-rate decisions depend heavily on the balance between inflation and employment.
Economists are expecting headline CPI to ease from 3.5% in June to approximately 3.4% in July, while core CPI is expected to decline from 2.6% to around 2.5%.
If inflation comes in below expectations, markets could further reduce the probability of additional Federal Reserve rate increases.
That would potentially be another positive catalyst for gold.
On the other hand, a stronger-than-expected inflation number could push Treasury yields and the US dollar higher and potentially create short-term selling pressure on bullion.
This makes the CPI release one of the most important events for gold investors this week.
Gold ETF demand is returning
One of the most encouraging developments for gold bulls is the return of investor money into exchange-traded gold products.
The SPDR Gold Shares (GLD), one of the world’s largest gold-backed ETFs, reportedly attracted approximately US$896 million in new inflows last week.
Over the past month, inflows have reached more than US$1.78 billion, taking the fund’s assets under management to approximately US$141.5 billion.
ETF flows matter because they provide an indication of institutional and investment demand.
When investors are reducing their exposure to gold ETFs, it can create additional selling pressure in the physical and futures markets.
When money starts flowing back in, it can have the opposite effect.
The latest inflows therefore suggest that investors are becoming more comfortable with gold again after the significant correction seen earlier in the year.
Gold’s technical picture is improving
The technical picture has also become considerably more constructive.
Gold recently formed what analysts describe as a double-bottom pattern around US$3,940, with the lows occurring around June 30 and July 17.
The neckline of that formation was located around US$4,200.
Gold has now broken above that level, providing a potential technical confirmation that the recent decline may have run its course.
The metal has also moved back above its 50-day exponential moving average, another sign that short-term momentum has turned more positive.
The Relative Strength Index, or RSI, is also rising.
While the RSI is approaching the 70 level traditionally associated with overbought conditions, reaching that level does not necessarily mean gold must immediately fall.
Instead, it shows that buying momentum is becoming stronger.
Could US$4,500 be the next target?
With gold now trading around US$4,300–US$4,400, the US$4,500 level is becoming an increasingly important psychological and technical target.
A sustained move through US$4,500 could open the door to further gains, particularly if the US dollar continues to weaken, Treasury yields decline and expectations for Federal Reserve rate increases continue to fade.
However, investors should also expect volatility.
Gold rarely moves in a straight line.
After a 10% recovery from its recent low, profit-taking would be entirely normal. The important question is whether any pullback can hold above the major support levels established during the recent correction.
What does US$4,500 mean for Australian investors?
This is where the Australian-dollar gold price becomes particularly important.
At approximately AUD $6,140 per ounce today, Australian investors are already experiencing gold prices at historically elevated levels.
But the local price is not determined solely by the US gold price.
There are two major components:
1. The international gold price
If gold rises from US$4,367 to US$4,500, that is a significant gain in the underlying metal.
2. The Australian dollar
If the Australian dollar strengthens against the US dollar at the same time, some of the increase can be absorbed when the US gold price is converted into Australian dollars.
Conversely, if the Australian dollar weakens, Australian gold prices can rise even faster.
This is one of the reasons Australian investors should follow the AUD gold price, rather than simply watching the US headline price.
Why regular accumulation can matter
The recent volatility also demonstrates why trying to perfectly time the gold market can be difficult.
Only a few weeks ago, gold was testing the US$4,000 area.
Now the market is discussing US$4,500.
That is a substantial move in a relatively short period.
For long-term investors, a regular accumulation strategy can provide an alternative to trying to identify the exact bottom.
Instead of investing a large amount at one particular price, investors can accumulate bullion progressively over time.
When prices are lower, the same amount of money purchases more gold.
When prices are higher, it purchases less.
Over time, this can create an average acquisition price and reduce the pressure to predict every short-term movement.
The FirstGold view
Gold’s latest rally is being supported by several factors coming together at once:
- A dramatically weaker US employment report
- Falling US Treasury yields
- A weaker US dollar
- Renewed gold ETF inflows
- Strong technical momentum
- Changing Federal Reserve rate expectations
- Continued geopolitical and economic uncertainty
The upcoming US inflation report could determine whether this momentum continues.
A softer-than-expected CPI reading could strengthen expectations that the Federal Reserve will become less aggressive, potentially providing another boost for gold.
A hotter inflation reading could have the opposite effect.
Either way, the bigger picture remains important.
Gold has demonstrated once again why physical bullion continues to attract investors during periods of uncertainty.
At around AUD $6,140 an ounce, gold is already trading at extraordinary levels in Australian dollars. The question now is whether the international market can break through US$4,500 and establish another leg higher.
For FirstGold investors, the focus remains on the long term: accumulate physical bullion progressively, remain disciplined through market volatility and avoid making investment decisions based solely on the next day’s price movement.
Gold has corrected sharply before, and it can do so again. But the latest combination of employment weakness, falling yields, ETF demand and improving technical momentum suggests the gold market is once again attracting significant attention.
The next major test is US inflation. After that, the US$4,500 target could become the market’s next major battleground.
Disclaimer: Gold and precious metals prices can be volatile and may fall as well as rise. This article is general information only and does not constitute financial advice.
