Gold Extends Rally on Investment Demand

Gold climbed above $4,400 an ounce on Tuesday, reaching its highest level in two months as investment demand for precious metals improved despite rising inflationary risks and expectations for interest rate hikes fueled by surging oil prices. Chinese institutional investors continued to increase their bullion holdings as a hedge against volatility in other markets, with gold-backed exchange traded funds in China recording their longest streak of inflows in months. China’s central bank also accelerated its gold purchases last month, with reserves rising by about 20 tons in July following an increase of around 15 tons in June, marking the largest monthly addition since October 2023. Meanwhile, uncertainty persisted over a potential deal between the US and Iran to end the war and reopen the Strait of Hormuz. Investors also awaited a key US inflation reading this week for fresh clues on the Federal Reserve’s policy outlook.

Gold prices held around $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.