Gold Soars 5% Amid Oil Price Decline, US Payrolls to Decide Breakout Fate

Gold prices surged to a seven-week high on Thursday and continued their upward trend on Friday, marking a weekly gain of over 5%. The metal's recovery is partly attributed to a decline in oil prices, which has eased inflation concerns and reduced the pressure on interest-rate expectations.

The Brent crude price rebounded about 1% to $83.38 a barrel on Friday but was still heading for a weekly decline of roughly 7.5%. The decrease in energy prices has lowered fears of another energy-driven inflation shock, which is supportive for gold as it pays no interest and benefits from falling bond yields and less hawkish Fed expectations.

Market analyst Matt Simpson sees easing Middle East concerns and the decline in energy prices as key reasons gold has broken out of its multi-week range above $4,000. However, the geopolitical backdrop remains unstable, with renewed Houthi attacks and Iranian proposals to restrict some vessels through the Strait of Hormuz potentially reviving inflation pressure on bullion.

The US employment report, due at 8:30 am New York time on Friday, will be a crucial test for gold's breakout. A weaker jobs report could pull Treasury yields lower and reduce expectations for tighter policy, while a stronger reading would risk reviving the higher-for-longer trade and putting pressure on gold.

The Federal Reserve remains an obstacle for gold bulls, with St Louis Fed President Alberto Musalem favouring earlier, gradual increases in interest rates rather than risking larger and more disruptive moves later if inflation remains elevated. If economic numbers allow yields to retreat without reigniting concerns about inflation, gold could recover towards $4,600.