Gold surged approximately 7% last week, marking its strongest weekly performance since January, driven by a weaker US dollar, declining Treasury yields, and a surprise contraction in employment data that eased concerns about aggressive Federal Reserve rate hikes.
It is important to note that the employment data was not exceptionally weak. Layoff levels remain low, and the private sector added 30,000 new jobs. The softer data was primarily influenced by seasonal factors, including a reduction of about 50,000 government education jobs, which created a negative distortion.
Key Drivers of Last Week's Gold Rally
US employment data fell short of expectations, with nonfarm payrolls coming in below forecasts and prior figures being revised lower. This signals a cooling labor market, prompting investors to seek safe-haven assets.
Macroeconomic conditions have shifted, with Treasury yields declining and the US dollar weakening. This reduces the opportunity cost of holding non-yielding gold.
Concerns over inflation expectations and the credibility of Federal Reserve policy have fueled uncertainty about future monetary policy direction, boosting safe-haven buying of gold.
The precious metals sector experienced a broad rally, with momentum spreading to silver, platinum, and palladium. Copper prices also remained near their highs.
The People's Bank of China is expanding its gold storage facilities in Hong Kong, supporting the city's ambition to become a major international gold trading hub. This move accelerates the broader trend of sovereign gold reserves flowing back to Asia from London. Central bank gold purchases have now increased for 21 consecutive months, with July 2026 alone seeing an addition of 20 tonnes of gold.
Gold prices are currently trading below their 150-day moving average. The more leveraged gold mining stock ETFs, GDX and GDXJ, are under pressure as they test this key moving average. A critical signal to watch is that Newmont Mining, the largest company by weight in the mining sector, has already crossed above its 150-day moving average. In my view, this suggests that GDX and GLD are likely to follow suit with a breakout soon.
The SPDR Gold ETF (GLD) real-time quote stands at $399.73, up $1.26 (+0.32%), as of 12:38 PM Eastern Time.
From the perspective of options traders, gold exhibits a more symmetric volatility smile, where out-of-the-money call options have a higher implied volatility than at-the-money calls. Compared to a similar strategy on the S&P 500, this structure is more favorable for bull call spreads (debit spreads), enhancing potential returns.
For example, a bull call spread on the SPDR Gold ETF (GLD) with November expiration, using strike prices of $400 and $460, can be established for a cost of approximately $16.15. This represents a little over 25% of the total width between the two strikes. Each contract covers 100 shares, for a total cost of $1,615. If GLD were to rise another 15% over the next 100 days, this strategy offers a potential risk-reward ratio of nearly 3:1.
Partnering with major futures trading platforms, Sina offers secure and efficient account opening services.
A wealth of information and precise analysis is available on the Sina Finance app.
Comments