Gold prices rose on Friday after cooler-than-expected U.S. jobs data reduced expectations for future interest rate hikes by the Federal Reserve.
This shift in employment data is critical because gold is a nonyielding asset. When the prospect of higher interest rates diminishes, the opportunity cost of holding gold drops, making the precious metal more attractive to investors and traders.
Gold was poised to end a volatile week on the front foot after cooler-than-expected U.S. jobs data eased investors’ rate-hike expectations, the Wall Street Journal Markets said.
The rally contributed to a 2.8% [1] increase in gold prices, according to the Business Times. This movement put bullion on course for its first weekly gain in five weeks, the Times of India said.
Market participants are closely monitoring the Federal Reserve's next moves. The CME FedWatch tool indicates that traders now see a nearly 51% [2] chance of a rate hike by September, the Business Times said. This is a notable decrease from the previous probability of 66% [3].
Investors often turn to gold as a safe-haven asset during periods of economic uncertainty, or when they anticipate a pivot in monetary policy. The weaker-than-expected jobs report has signaled a potential cooling of the U.S. labor market, which may prompt the Federal Reserve to pause or slow its cycle of interest rate increases.
Because gold does not pay interest, its price typically moves inversely to U.S. Treasury yields. As the likelihood of aggressive rate hikes fades, the appeal of holding gold increases relative to yield-bearing assets.
“Gold prices extended their rally on Friday, putting bullion on course for its first weekly gain in five weeks”
The inverse relationship between gold prices and interest rate expectations remains a primary driver of the commodities market. By signaling a softening labor market, the recent jobs data has effectively lowered the 'hurdle rate' for gold, shifting investor sentiment toward safe-haven assets as the probability of further Federal Reserve tightening declines.
