Gold's Record-Setting Rally Cools Ahead of Jobs Data

Ben McMillan, CIO at IDX Advisors, talks about the record rise in gold and the return of bond vigilantes.

Gold’s record-setting rally cooled, as markets awaited a key US jobs report to justify wagers on US interest-rate cuts that have helped bolster the metal’s price.

Bullion fell as much as 1.3% as traders took profits after a seven-day rally fueled by mounting bets on US rate cuts and strong haven demand amid concerns over the Federal Reserve’s future. Prices hit an all-time high above $3,578 an ounce on Wednesday following a weak US jobs report that spurred markets to almost fully price in a US rate reduction this month.

Investors are now bracing for a pivotal US payrolls report on Friday, which will either validate or upend wagers that the Fed will resume policy easing later in September. The print is expected to show a fourth month of weak payrolls growth. Lower borrowing costs tend to boost the appeal of non-yielding gold.

Still, technical measures suggest gold’s recent run of almost 6% may have been too strong, with the 14-day relative-strength index showing the metal reached overbought levels this week.

“Today’s pullback looks like tactical de-risking — after gold’s outsized run versus real rates and signs of froth, investors are trimming ahead of payrolls event risk,” said Saxo Capital Markets Pte. strategist Charu Chanana. Still, “the longer-term bull case remains intact, anchored by Fed rate cut expectations, central-bank demand, and questions over Fed independence.”

The precious metal is up by more than a third this year, making it one of the best-performing major commodities. Fed Chair Jerome Powell last month cautiously opened the door to a cut amid signs of a softening labor market.

There’s still a high degree of uncertainty beyond September, with divisions between some policymakers adding to the mix. On Wednesday, Fed Reserve Governor Christopher Waller — a key contender to succeed Powell as chair next year — called for multiple cuts in the coming months. Fed Bank of Atlanta President Raphael Bostic, meanwhile, published an essay on the same day reiterating that he sees one rate cut as appropriate for this year — though that could change based on what happens with inflation and the labor market.

“The Fed is caught between the opposing forces of its dual mandate. On the one hand, there’s more evidence of labor market softening, but on the other, inflation risks remain,” said Oversea-Chinese Banking Corp. currency strategist Christopher Wong. “Adjusting positions is a prudent move ahead of event risks,” he added, referring to the payrolls data.

Both gold and silver have more than doubled over the past three years, with mounting risks in geopolitics, the economy and global trade driving have demand. An escalation in President Donald Trump’s attacks against the Fed this year has increased worries over the central bank’s independence, as the president vowed to gain a “majority, very shortly” on the central bank and bring down rates.

Markets are also waiting for a landmark ruling on whether Trump has legitimate grounds to remove Fed Governor Lisa Cook, which could allow the president to replace her with a dovish-leaning official. At the same time, a Senate Banking Committee is set to accelerate a confirmation hearing on Trump’s nomination of close adviser Stephen Miran to be a governor of the central bank.

Silver’s performance this year has been even more impressive than gold’s, with prices up more than 40%. On Monday, it breached $40 an ounce for the first time since 2011.

Silver is also valued for its industrial uses in clean-energy technologies, including solar panels. Against that backdrop, the market is headed for a fifth year of deficits, according to the Silver Institute. Investors have piled into silver-backed exchange-traded funds, with holdings expanding for a seventh consecutive month in August. That’s drawn down stockpiles of freely available metal in London, leading to persistent tightness in the market.

Spot gold was down 0.5% at $3,541.79 an ounce by 11:34 a.m. in London. The Bloomberg Dollar Spot Index was steady.

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