- Bullion rallied last week amid hopes for peace in the Middle East.
- According to the Bureau of Labor Statistics, the economy lost 23,000 jobs in July.
- Traders are pricing a 50% chance of a Fed rate hike in September.
Gold closed its best week since January on Friday as Fed rate hike expectations eased. A resumption of talks in the Middle East and a downbeat nonfarm payrolls report lowered the likelihood of a rate hike in September. Market participants are now awaiting more policy cues from the US CPI report.
Gold weekly performance (Source: Bloomberg)
Bullion rallied last week as hopes for peace in the Middle East sent oil prices lower. The US and Iran resumed talks on Monday last week with the aim of signing a deal to reopen the Strait of Hormuz. As a result, their conflict paused, allowing oil prices to pull back. The decline in oil prices eased inflation worries, and Fed rate-hike expectations dropped.
However, as the week came to a close, investors were losing hope for a near-term deal in the Middle East. When the talks began, the US Treasury Secretary said a deal would come in a day or two. However, that was not the case. Iran released a restrictive draft that would ban us and Israeli ships from using the Strait. At the same time, they said they would not negotiate with the US, citing violations of their June 17th ceasefire deal.
The back-and-forth has created uncertainty about the future. However, experts have noted that the recent flares of fighting are less intense, keeping alive hopes that the war will eventually end.
Furthermore, bets on a rate hike fell after the US released its monthly employment report. According to the Bureau of Labor Statistics, the economy lost 23,000 jobs in July. Economists had expected employers to hire 85,000 new workers. Moreover, June numbers were revised lower, pointing to weakness in the labor market.
The Fed has been under a lot of pressure to hike borrowing costs due to a spike in oil prices, which has driven inflation higher. The labor market has remained mostly resilient, giving the Fed enough room to hike rates. However, Friday’s report indicated a slowdown, putting the Fed in a tight spot.
After the report, traders priced in a 50% chance of a September hike, down from 67% before the data. Low borrowing costs support the non-yielding yellow metal. Market participants are now waiting to see the state of inflation when the CPI report comes out on Wednesday.
