Gold prices slipped as investors awaited the release of the US July jobs report on Friday. While declining US Treasury yields and the prospect of a Federal Reserve rate cut in September provided some support to gold prices, a stronger US dollar weighed on the precious metal’s market.
As of Thursday’s (August 1st) market close in New York, spot gold prices fell by 1.2 USD/oz from the previous session’s close, equivalent to a marginal decline of nearly 0.05%, settling at 2,447.1 USD/oz, according to data from Kitco Exchange.
As of nearly 10 a.m. Vietnam time today, spot gold prices in the Asian market fell by 3.5 USD/oz from the US close, equivalent to a decline of 0.14%, to 2,443.6 USD/oz. This price is equivalent to approximately 74.8 million VND/tael if converted at Vietcombank’s selling exchange rate.
Gold prices weakened as the US dollar strengthened. The Dollar Index, which measures the strength of the US dollar against a basket of six other major currencies, closed Thursday above 104.4 points, up from below 104 points in the previous session.
Since gold is priced in USD, a stronger greenback makes the yellow metal more expensive for buyers holding other currencies.
However, gold prices did not decline significantly as they were supported by the downward trend in US Treasury yields and the possibility of the Fed beginning to cut interest rates in September.
Weekly reports from the US Department of Labor showed that initial jobless claims rose to their highest level since August 2023. Meanwhile, the ISM manufacturing purchasing managers’ index (PMI) – a measure of manufacturing activity – came in at 46.8 points, below expectations and signaling a potential economic recession.
Following the release of these reports, the yield on the 10-year US Treasury note fell below 4% for the first time since February.
The sharp decline in yields reflects concerns about a possible US economic recession. In the event of a recession, the Fed may need to lower interest rates quickly and aggressively to stimulate growth. A low-interest-rate environment and economic uncertainty would typically benefit gold prices.
However, investors are still awaiting a crucial statistical report to gain a clearer picture of the state of the US economy. The US Department of Labor is expected to release the comprehensive July jobs report on Friday.
“The market is betting on a 100% chance that the Fed will start cutting rates in September. There are even those who believe the Fed could cut rates by 0.5 percentage points,” said Bart Melek, chief strategist at TD Securities.
However, expectations about interest rates could fluctuate after the upcoming jobs report.
Additionally, central bank gold purchases and physical gold demand in Asia have shown signs of weakening. Some central banks are reducing their net gold purchases or even halting purchases altogether, as seen in the case of China, after a prolonged period of consistent buying. High gold prices have also made consumers and investors in China and India, the world’s two largest gold consumers, more cautious.
“Therefore, the gold market is not yet operating at full speed. But we believe that this will happen soon. Central bank gold demand will remain high in 2024/2025, even though China has temporarily stopped net purchases,” Citi said in a report.
The People’s Bank of China (PBOC) was the world’s largest net purchaser of gold in 2023, but it halted purchases for two consecutive months in May and June.
