Gold Soars as Dollar Weakness and Repriced Rate Expectations Combine
The price of gold surged to a fresh seven-week high on Friday, reaching $4,429.30 per troy ounce after the July payrolls report showed the economy shed 23,000 jobs against expectations of 80,000.
The decline in job creation and the corresponding drop in Treasury yields sent investors fleeing from the dollar, which weakened to near 99.95 on the dollar index, marking a psychological pivot point for gold prices.
The real driver behind the gold rally is the repricing of rate expectations by the Federal Reserve. The market initially priced in a 63% probability of a September hike, but after Friday's report, that probability plummeted to 46%, causing nominal yields to fall and breakeven inflation to remain elevated.
The situation is precarious for gold, as it depends on the Fed staying parked, with a potential August CPI print sparking higher rate expectations and driving real yields back up. If this happens, gold could lose $4,300 in value.