Gold prices dipped on Friday as investors secured profits after a strong rally in the previous session. Analysts predict that gold prices could soon breach the $2,500/oz mark as the risk of an economic recession in the US may force the Federal Reserve to cut interest rates more than expected.
According to data from Kitco, gold prices for immediate delivery fell by $3/oz, or 0.12%, to close at $2,444.1/oz in New York. This price translates to approximately 74.7 million VND per tael if converted using Vietcombank’s selling exchange rate.
However, gold prices rose by 1.8% this week as risk aversion increased amid escalating geopolitical tensions in the Middle East and investors’ expectations that the Fed will cut rates in September, a move that would create a more favorable environment for gold.
“At the current gold price levels, we believe there will be some pullbacks and profit-taking by investors. But fundamentally, the outlook for gold prices is tilted more towards the upside than the downside,” said Alex Ebkarian, COO of Allegiance Gold.
The latest employment data showed a sharper-than-expected slowdown in US job growth, with the unemployment rate rising to its highest level since October 2021. The non-farm payrolls report from the US Department of Labor showed that 114,000 new jobs were added in July, fewer than the 179,000 in June and falling short of economists’ predictions of 185,000 new jobs in a Dow Jones survey.
The report caused US Treasury bond prices to surge while the dollar plunged, providing support for gold prices and preventing a deeper decline due to profit-taking pressures.
As bond prices rose, the yield on the 10-year US Treasury bond fell to its lowest level since December last year as investors rushed to buy bonds as a safe haven. They worry that the Fed may have made a mistake by not cutting interest rates at this week’s monetary policy meeting.
Meanwhile, the dollar weakened significantly, with the Dollar Index falling 1.15% to close the week at 103.22, its lowest level since March. For the week, the Dollar Index lost 1.05%.
A crucial factor driving gold prices this week was Fed Chairman Jerome Powell’s statement on Wednesday that the central bank could cut rates as soon as September if the US economy evolves as expected.
With the disappointing jobs report, experts believe the Fed may need to reduce interest rates by 0.5 percentage points at the September meeting instead of the initially expected 0.25 percentage points.
“The market is pricing in a greater than 70% chance that the Fed will cut rates by 0.5 percentage points at the September meeting,” said Jim Wyckoff, senior analyst at Kitco Metals.
According to MarketWatch, gold prices have broken records three times in less than three weeks. The most recent record was set on Thursday, with December gold futures touching $2,506.6/oz, an all-time intraday high.
With declining interest rates and persistent global geopolitical tensions, State Street predicts gold could trade in the $2,200-2,500/oz range for the remainder of the year “barring any significant changes in the economic and political landscape.”
George Milling-Stanley of State Street noted that the world’s economic and political environment “is becoming more conducive to higher gold prices, such as a weaker dollar due to Fed rate cuts.” He also stated that gold prices could very well reach the $2,500-2,700/oz range.
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