Gold Prices Surge Past $4,350 Amid Cooling Fed Rate Hike Expectations

Spot gold prices have broken through $4,350 and are heading toward $4,400, reaching their highest level since June 17. This increase is attributed to the cooling of US July non-farm payrolls data, which unexpectedly turned negative with a decline of 23,000 jobs.

The drop in job numbers suggests that labor market pressure may be growing under the dual squeeze of uncertainty from the war in Iran and rising price pressures. As a result, traders quickly scaled back bets on a Federal Reserve rate hike in September, with the CME FedWatch Tool now pricing in a 44.1% probability of a 25-basis-point rate hike.

With falling expectations of Federal Reserve rate hikes, the risk-free rate and Treasury yields are likely to head lower. This decrease in interest rates makes gold more appealing as it reduces the opportunity cost of holding the asset, which yields no interest. The weakening US dollar also boosts demand for dollar-denominated gold allocations.

The long-term allocation value of gold is rising due to major global central banks losing control over the bond market. According to Federal Reserve Chairman Kevin Warsh, this has led to an unsettling reality where the ultimate beneficiary may be gold.