Gold prices displayed limited movement on Friday, maintaining near three-week highs as market participants eagerly anticipated nonfarm payrolls data for further insights into U.S. monetary policy. In the meantime, copper prices experienced an upswing due to positive factory data from China, bolstering sentiment for the industrial metal.
Gold’s Recent Performance and Potential Influences
Over the course of the week, the yellow metal enjoyed a strong rally, driven by a series of disappointing economic indicators in the United States that fueled expectations of a pause in interest rate hikes by the Federal Reserve. This sentiment contributed to a decline in the value of the dollar. However, the greenback rebounded on Thursday following the release of data indicating that personal consumption expenditures, the Fed’s preferred measure of inflation, remained steady in July, while personal spending exceeded expectations. Consequently, gold’s gains for the week were tempered.
As of 00:59 ET (04:59 GMT), spot gold steadied at $1,940.14 per ounce, while gold futures expiring in December remained unchanged at $1,966.55 per ounce. Both instruments experienced weekly gains ranging from 1% to 3%.
Nonfarm Payrolls and Implications for Monetary Policy
Market attention is now focused on the nonfarm payrolls data for August, scheduled to be released later in the day. Although expectations suggest a decline compared to the previous month, market participants remain cautious about potential surprises, given the consistently better-than-expected performance of payrolls throughout the year.
Any indications of strength in the labor market, coupled with persistently sticky inflation, would provide the Federal Reserve with greater flexibility and motivation to maintain higher interest rates. While a rate hike in September may not be imminent, the expectation is that interest rates will remain at elevated levels for an extended period.
Gold’s prospects have been undermined by rising interest rates, which have led to increased opportunity costs for investing in non-yielding assets. Additionally, the outlook for the yellow metal in the near-term is dimmed by expectations of prolonged high interest rates. Furthermore, stronger-than-expected inflation data in the eurozone points to the likelihood of higher rates in other major economies.
However, gold may still find support if global economic conditions deteriorate amidst the backdrop of high interest rates. Recent U.S. GDP data revealed a cooling of the world’s largest economy, despite avoiding a recession in the first half of the year.
Copper’s Surge Driven by China
Among industrial metals, copper prices experienced an uptick on Friday, tracking a private survey indicating unexpected growth in China’s manufacturing sector for August.
This survey supported the official government data released on Thursday, which indicated that China’s manufacturing sector was gradually moving toward expansion territory, even though the official reading still suggested contraction.
The positive private survey, combined with additional stimulus measures implemented by Beijing, improved sentiment toward China as the largest global copper importer. The Chinese government announced relaxed mortgage requirements for the property sector and adjusted deposit and reserve rates to enhance local liquidity.
Copper futures climbed 0.5% to reach $3.8525 per pound, poised to register a gain of 2.4% for the week.