Gold heads for highest weekly close

2 Ağustos 2024

Gold heads for highest weekly close in history amid weakening us labor market and soaring geopolitical tensions

Today’s market analysis on behalf of Samer Hasn, Senior Market Analyst at XS.com

Gold is once again approaching its all-time highs, surpassing $2,470 an ounce and poised to post its highest weekly close in history.

Gold’s gains today come as the US labor market is showing its weakest performance in nearly two and a half years, prompting Treasury yields to give up all of their gains this year, while geopolitical tensions in the Middle East are at their highest.

Today’s shocking data from the Bureau of Labor Statistics have significantly changed market expectations regarding the Federal Reserve’s next steps. Markets are increasingly optimistic about multiple rate cuts this year.

The nonfarm labor market added just 114,000 jobs in July, which was far from the median forecast of 176,000 and also the lowest reading since January 2021. Additionally, unemployment unexpectedly rose to 4.3%, which is also the highest level since October 2021. Average hourly earnings growth was also slower than expected at 0.2%.

While markets were pricing in a near-certainty, with a 90% chance, that the Fed would cut rates by 25 basis points in September, they are now split between a 25- or 50-basis-point cut in September, plus another 25-basis-point cut or two between November and December, which could see a full percentage point cut this year, according to the CME FedWatch Tool.

This significant shift in expectations has sent the 10-year Treasury yield further sharply lower, reaching 3.792%, the lowest since December of last year.

I believe that these numbers may give the Fed comfort to cut interest rates more than once this year, not only because of the decline in inflation and the easing of monetary tightening, but also to prevent further decline in the labor market, which would bring back fears of a recession after it disappeared throughout this year.

What keeps gold from losing ground is the specter of regional war looming over almost every corner of the Middle East. Markets are warily awaiting the outcome of the assassinations of Hamas political chief Ismail Haniyeh and Hezbollah leader Fouad Shukr.

These assassinations have made US administration officials concerned that Israel will face a multi-front response, which is what is pushing the Biden administration and regional countries to intensify contacts to defuse the all-out war and revive the stalled ceasefire negotiations in Gaza, according to The Wall Street Journal.

Hezbollah Secretary-General Hassan Nasrallah also spoke yesterday about the conflict entering a new phase and said that Israel does not realize the red line it has crossed.

While the series of developments witnessed this week may not stop at the question of what the possible response from Iran or Hezbollah and their allies to Israel will be, it may extend to make the entire Middle East file more complicated than before. The continuation of the unprecedented escalation in a successive manner may make negotiations on the Iranian file more difficult and may encourage the Islamic Republic to ramp up its nuclear program, according to The New York Times.

Although the US has intensified its efforts to prevent the Middle East from slipping to the brink of a regional war that would drag it there, it has confirmed its continued military support for Israel, according to Axios. This, I believe, gives Prime Minister Benjamin Netanyahu comfort to continue escalating on all regional fronts. In addition, he needs to continue to escalate in light of pressure from his far-right coalition in order to stay in power, according to Politico.

 

Zaid Barem/ YMM