- Strong economic data during the week drove Treasury yields to their highest level in nine months.
- The Bank of England warned that borrowing costs would likely remain high.
- US nonfarm productivity rose by an annualized 3.7%.
On Thursday, gold prices appeared poised to record their worst week in six as investors prepared for a closely watched US jobs report.
US yields (Source: Bloomberg)
This came after strong economic data during the week drove Treasury yields to their highest level in nine months. The increase in US long-term Treasury yields, which reached the highest level since November, was driven by positive employment and economic indicators signaling easing inflation.
Markets will now focus on the nonfarm payrolls report on Friday. Tim Waterer, the chief market analyst at KCM Trade, stated that gold‘s progress would likely depend on the dollar’s response to the NFP figures. Currently, gold trades with little momentum due to its lack of yield attractiveness relative to other assets.
Elsewhere, the Bank of England warned that borrowing costs would likely remain high for some time. At the same time, a European Central Bank board member advocated maintaining the current high-interest rates for an extended period. Rising interest rates have diminished gold’s appeal as it doesn’t offer interest payments.
On Thursday, gold recovered slightly as the dollar retreated from a four-week peak. This came after the US labor market data failed to impress ahead of the crucial jobs report. Treasury yields also rose but eased at the short end.
Regarding productivity, nonfarm productivity rose by an annualized 3.7%, contributing to curbing labor costs and improving the US inflation outlook. However, labor productivity has only grown 1.4% since the fourth quarter of 2019, significantly below the long-term average of 2.1% since 1947.
Additionally, data showed a slight increase in the number of Americans filing new unemployment claims last week, while layoffs fell to an 11-month low in July amidst a tight labor market.
The labor market has shown resilience despite enduring 525 basis points in interest rate hikes by the Federal Reserve since March 2022. It is expected to have experienced another month of robust employment gains in July.
As the Federal Reserve gears up for its annual symposium in Jackson Hole, Wyoming, scheduled from Aug. 24-26, there are signs that the US central bank may be nearing the end of its interest rate hikes.
