Bullion gains ahead of key labour market data
Spot gold prices moved higher on Thursday as investors positioned themselves ahead of the release of the closely watched U.S. nonfarm payrolls report, which could influence the Federal Reserve’s next monetary policy decisions.
By 10:37 GMT, spot gold had climbed 0.8% to $4,065.05 per ounce, while gold futures slipped 0.1% to $4,077.42 per ounce.
Labour market expected to remain resilient
Economists forecast that the U.S. economy created 114,000 jobs in June, down from 172,000 in May, while the unemployment rate is expected to remain unchanged at 4.3%.
The nonfarm payrolls report has exceeded market expectations in each of the past three months, lifting the three-month average of job creation to 188,000, the strongest level in two years.
“Our forecast suggests a solid job market, reconfirming that the labor market has reaccelerated from its last year’s soft patch,” analysts at Morgan Stanley said in a note.
Fed outlook remains central to gold prices
A resilient labour market could provide the Federal Reserve with greater flexibility to raise interest rates further this year, particularly as policymakers continue to monitor inflationary risks linked to energy prices.
Although crude oil prices have eased following last month’s framework peace agreement between the United States and Iran, uncertainty remains over whether the earlier surge in energy prices will continue to influence inflation.
Analysts at Deutsche Bank said a “hawkish repricing” in Federal Reserve expectations has taken place in recent weeks.
According to CME FedWatch data, investors now see the possibility of another interest rate increase as early as September.
However, expectations for tighter policy eased slightly this week after weaker-than-expected U.S. private payrolls figures and comments from Federal Reserve Chair Kevin Warsh indicating that inflation risks have moderated.
Dollar strength continues to weigh on bullion
Interest rate expectations remain an important driver for gold because higher rates increase the opportunity cost of holding non-yielding assets.
The U.S. dollar index edged lower on Thursday but remained comfortably above levels seen before the recent Middle East conflict, supported by expectations of a relatively hawkish Federal Reserve.
A stronger dollar typically reduces the appeal of gold by making the metal more expensive for international buyers.
“The firmer currency backdrop […] is prompting investors to reassess positioning after a volatile few weeks,” said Neil Welsh, Head of Metals at Britannia Global Markets, in a note.