Gold prices rallied sharply, reaching $4,372 an ounce on Friday, marking a 3.1% increase, and are set for an approximate 8% weekly gain, the strongest performance since January. This surge was triggered by a weaker-than-expected U.S. jobs report for July, which showed a loss of 23,000 nonfarm jobs, defying economists' expectations for an 83,000 increase. Additionally, earlier payroll figures for May and June were revised downwards by a combined 103,000 jobs, suggesting a more substantial and prolonged weakening of the labor market than initially indicated.
The soft jobs data led to a significant shift in interest-rate market expectations. The probability of a Federal Reserve rate hike in September dropped to about 44% from 63% before the report, according to various market data sources. This reduction in rate hike expectations makes gold, which does not pay interest or dividends, more attractive relative to interest-bearing assets. The U.S. dollar also weakened following the report, further boosting gold's appeal as it is priced in dollars.
Average hourly earnings rose modestly with annual wage growth near 3.2%. This combination of softening employment and limited wage acceleration could give policymakers more flexibility to reconsider the path of interest rates if inflation continues to moderate. Analysts noted that the report suggests the labor market may be losing momentum after a period of resilience, increasing the likelihood of a less restrictive policy environment and encouraging demand for assets like gold, which are seen as stores of value during economic uncertainty.
The rally in gold marks a rapid reversal in sentiment, as bullion had fallen nearly 20% from its January peak of about $5,600 an ounce. UBS analysts anticipate gold prices to climb to $5,000 per ounce in the first half of 2027. Other precious metals also saw gains, with spot silver rising 3.4% to $63.54 per ounce, platinum firming 1% to $1,745.87, and palladium increasing 0.4% to $1,376.90, all heading for weekly gains.
Institutional investors, including those in China, are showing increased confidence, with gold-backed exchange-traded funds experiencing their longest streak of inflows since March. These investors view current prices as an attractive entry point, especially with gold holding above the key $4,000 an ounce level. The sentiment is that the July jobs report has made the Fed's next move less predictable, and gold tends to perform well when there is uncertainty about central bank policy.
