Gold Rises as European Debt Risks Boost Safe-Haven Demand
Gold prices rebounded after their largest weekly decline since June, as growing debt concerns in Europe increased demand for safe-haven assets. Spot gold rose by 0.5% to trade near $4,160 an ounce, recovering from a 3.4% drop the previous week. The surge in gold came amid political gridlock in France, which triggered a selloff in vulnerable European debt.
The precious metal received a temporary boost last week after US nonfarm payrolls increased by just 29,000 in September, falling short of all economist estimates. This eased near-term pressure on the Federal Reserve to raise interest rates, though gold faced renewed pressure by Friday as high oil prices continued to weigh on the economic outlook. Currently, markets price in a 20% chance of a Fed rate hike in October, down from 70% a week earlier. Higher rates typically reduce gold's appeal compared to yield-bearing assets like Treasuries.
Despite easing rate hike expectations, inflationary pressures remain. Global benchmark Brent oil remains above $100 a barrel, and some rate tenors are near their highest in over two decades. Treasury Secretary Scott Bessent downplayed concerns over high borrowing costs, noting they align with global trends. Gold fell over 6% last month due to energy-driven inflation, higher US rate prospects, and a strengthening dollar, which makes gold more expensive for many buyers. Fed officials have downplayed the chance of an imminent rate hike.
Spot gold climbed 0.4% to $4,158.53 an ounce by midday, while silver rose 2.2% to $61.68 an ounce after a 6% drop last week. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index, a measure of the US currency, rose 0.2%, continuing a three-week gain. Analyst Manav Modi from Motilal Oswal Financial Services noted that gold's recovery is constrained by elevated Treasury yields, currently around 5.2%, due to persistent inflation, fiscal concerns, and heavy government borrowing.