Spot gold experienced a sudden and sharp increase during Asian trading hours on Friday, with prices now approaching the $4200 per ounce level. The rally, marking a gain of around $70 or 1.7% intraday, comes as the market reassesses the likelihood of the Federal Reserve raising interest rates this year to combat inflation following the release of weaker US employment data.
This follows a significant 2.3% jump in gold prices on Thursday, the largest single-day gain in three weeks. The catalyst for the move was data showing a notable slowdown in US job creation for June, indicating ongoing challenges in the labor market despite recent signs of strength.
Simultaneously, renewed concerns about Federal Reserve independence have emerged, driven by recent political developments. These concerns have historically fueled market dynamics that can be supportive for gold prices.
The US Department of Labor's report on Thursday revealed that non-farm payrolls increased by only 57,000 in June, significantly below economist forecasts of 110,000. Previous months' figures were also revised downward.
The soft data is expected to reduce pressure on the Federal Reserve to hike rates at its upcoming July meeting. Expectations for higher borrowing costs have previously acted as a headwind for non-yielding assets like gold.
Market participants have already scaled back their bets on Fed rate hikes. Pricing in interest rate swap markets now implies only an 18% probability of a rate increase at the next meeting, down from around one-third earlier in the week.
Adding to the disinflationary narrative, oil prices—a key driver of recent inflation—have retreated close to pre-conflict levels, further easing price pressures. This decline was extended this week amid positive diplomatic developments.
Analysts note that falling energy costs combined with slowing employment growth suggest inflationary pressures may ease in the coming months. The resulting cooling of Fed rate hike expectations is seen as prompting traders to cover short positions in gold while reducing the incentive to liquidate long positions, which explains the metal's recent price strength.
One market strategist suggested that gold's rally may extend towards a resistance level near $4,280 per ounce, while maintaining a longer-term bullish target for next year, citing persistent underlying inflation pressures.
Among other precious metals, silver rose 1% to $61.50 per ounce during the Asian session, building on a 5% gain over the prior three trading days. Platinum and palladium also advanced by approximately 1% each.
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