Gold prices are climbing quickly, driven by an unexpectedly weak U.S. jobs report that has pushed back expectations for interest-rate increases, along with expanding gold purchases by central banks around the world.
Spot gold topped $4,400 per troy ounce on the 11th local time, its highest level in two months, according to the Nihon Keizai Shimbun and Bloomberg. New York futures also rose to $4,473 that morning.
The main driver behind the rally is the U.S. jobs report released on the 7th. Nonfarm payrolls fell by 23,000 from the previous month, missing market expectations of an 83,000 increase by more than 100,000. With employment weaker than expected, forecasts for a rate increase by the U.S. Federal Reserve have receded. Because gold is a zero-yield asset, it generally becomes more attractive relative to deposits as rates fall.
Gold moves in the opposite direction to the dollar. Late last month, an unusual coordinated intervention by the United States and Japan in the currency market lifted the yen, pushing the dollar index below the psychological threshold of 100. "Gold and the dollar have historically shown an inverse correlation," Tim Waterer, chief market analyst at KCM Trade, told Nikkei, adding that the currency-market intervention reinforced gold's firm trend.
SPDR Gold Shares, the world's largest exchange-traded fund backed by physical gold, saw its assets grow by $11 billion over one week as of the 7th, while its gold holdings rose by 10 tons.
Central banks are also rushing to buy gold. According to the People's Bank of China's end-of-month balance sheet released on the 7th, its gold holdings rose 20 tons from the previous month, the largest increase since October 2023. The central bank has bought gold for 21 consecutive months, the longest stretch since records began in December 1999. China in particular has been expanding its gold purchases since the outbreak of the war in Iran, Nikkei reported. The Bank of Korea also made small purchases of overseas-listed physical gold ETFs in the second quarter of this year, resuming gold investment after 13 years.
Separately, central banks worldwide net-purchased 288.9 tons of gold in the April-June period, the largest amount since 2010, according to the World Gold Council (WGC).
Some analysts say shaken fundamentals — including a deterioration in U.S. finances from the war in Iran — have also affected gold prices. "With fiscal deterioration from rising war costs added to the mix, confidence in the dollar as the key reserve currency is being shaken further," said Koichiro Kamei, head of the Market Strategy Institute.
Still, Nikkei noted that "with uncertainty over the Middle East situation still high and international oil prices also at risk of surging, it is difficult to conclude that gold prices will keep rising."
Attention is also turning to the July U.S. consumer price index (CPI), due out on the 12th. The market expects the CPI to rise 0.1% from the previous month. If the slowdown in inflation continues, forecasts for a Fed rate increase will keep receding, but a sharper-than-expected rise in prices could complicate the Fed's calculations.
