Gold prices rose by about 0.4% after jumping more than 1% on Friday amid lower U.S. Treasury yields and expectations of a Fed rate cut in September. Today's price increase was caused by the escalation of geopolitical tensions in the Middle East.
However, the further growth of the precious metal was limited by the positive dynamics of the US currency. The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.20% to 104.53.
The focus also remains on Friday's US data, which provided new evidence of progress in the fight against inflation. In general, economists expect that at their July meeting, which ends on Wednesday, Fed policymakers will signal the beginning of a monetary easing cycle in September. According to the CME FedWatch Tool, markets see a 100% probability of a rate cut in September, and a 100% probability of monetary policy easing in November. Non-yielding bullion’s appeal tends to shine in a low-interest-rate environment.
In addition to the Fed meeting, data on the US labor market, which is scheduled to be published on Friday, may have an impact on the precious metal this week. Although job growth remained above 200,000 in June, the increase over the previous two months was significantly revised downward (-111 thousand in net terms), and the June increase was mainly concentrated in the less sensitive to cyclical changes in sectors of public administration and healthcare. The most obvious sign of the cooling of the labor market was the increase in unemployment to 4.1%, which is almost 0.5% higher than at the beginning of the year. The expected increase in the number of jobs by 185 thousand in July will still be a decent increase, but it will emphasize that the overall situation in the labor market is deteriorating. According to a number of indicators, including the unemployment rate, the rate of layoffs, the level of temporary workers and small business hiring plans, the labor market is not only weaker than a year or two ago, but also weaker compared to its pre-pandemic level. As a result, the pressure on wages has decreased. The average hourly wage is expected to have increased by 0.3% in July, bringing the annual rate to 3.7% (more than a three-year low). Meanwhile, the unemployment rate is likely to remain unchanged at 4.1%.