Gold Hovers at 2-Month High

Gold prices held above $4,340 per ounce on Monday, near the highest in two months, as markets scaled back bets of a Federal Reserve rate hike this year. Signs of a softening labor market supported rate futures to reflect more positions of a hold rather than a hike in the Federal Reserve's upcoming rate decision in September. Nonfarm payrolls unexpectedly declined in July while wages slowed, although a lower unemployment rate indicated that the labor force is declining sharply. Lower energy prices also contributed to softer risks of higher rates for bullion holders. Lesser strikes against Iran by the US were consistent with Washington's rhetoric that a deal with Iran may be reached, driving energy costs do hold below recent peaks. Elsewhere, Chinese investors continued to increase long position on gold-backed assets for safety from volatility in tech stocks and recent signs of strength in the physical market. Gold buying was also seen by central banks, especially in Asia.

Gold remained above $4,300 an ounce on Monday after surging more than 7% last week, supported by an unexpected contraction in the US labor market that led traders to reduce expectations for a near-term Federal Reserve interest rate hike. Data released Friday showed the US economy unexpectedly lost 23K jobs in July, following a downwardly revised 20K increase in June and falling well short of forecasts for an 80K gain. Markets now price around a 44% chance of a 25 basis point rate hike in September, down from 67% a week earlier. Gold also held its gains even after oil prices climbed higher as uncertainty persisted over efforts to reopen the Strait of Hormuz. Iran said talks with Oman were close to an agreement but denied holding direct negotiations with the US, despite Washington’s claims that a deal was imminent.

Gold prices rose to above $4,350 per ounce on Friday, the highest in two months as lower energy prices and softening labor conditions limited expectations that the Federal Reserve would deliver a rate hike this year. The US economy unexpectedly shed jobs in July while wages and the labor force participation rate fell, erasing any views that the strong labor market was inflationary. On top of that, energy prices lost some of the traction from previous sessions despite lingering uncertainty of a deal between Iran and the US to restore exports through the Strait of Hormuz. Treasury yields consequently eased, lifting bullion prices as markets faced lower opportunity costs to hold assets that bear no interest. Elsewhere, data from clearing institutions indicated that institutional investors in China continued to increase long position on gold-backed assets for safety from volatility in tech stocks and recent signs of strength in the physical market, recently underpinned by central banks.