Gold prices rose sharply on Wednesday, supported by a combination of two key factors: a weaker US dollar and lower US Treasury yields. This surge comes as investors eagerly await key US jobs data, which is expected to provide clearer indications of the Federal Reserve's (the US central bank) future monetary policy path.
The price of gold rose significantly in spot trading, and US gold futures also saw a strong rise, reflecting growing investor confidence in the yellow metal as a safe haven amid the current economic uncertainty.
General context and inverse relationship with the dollar
Historically, gold has been considered a key hedge against inflation and geopolitical and economic risks. Its importance lies in its ability to maintain its value when paper currencies lose some of their purchasing power. There is a strong inverse relationship between gold and the US dollar; when the dollar index, which measures its value against a basket of major currencies, declines, gold, which is priced in dollars, becomes cheaper for buyers using other currencies, leading to increased demand and a rise in its price.
In the current context, the dollar index has fallen to its lowest level in several weeks, providing direct support for gold prices. Furthermore, the decline in yields on 10-year US Treasury bonds reduces the opportunity cost of holding gold, which does not generate interest, making it more attractive to investors compared to bonds.
The importance of job data and its expected impact
Global markets are now focused on the US non-farm payrolls report, a key economic indicator closely monitored by the Federal Reserve. This data will provide valuable insight into the strength or weakness of the US labor market, a crucial factor in interest rate decisions.
If the data comes in weaker than expected, it could indicate a slowing economy, reinforcing expectations that the central bank might begin cutting interest rates sooner to support growth. Such a scenario would be very positive for gold, as lower interest rates reduce the appeal of yield-generating assets like bonds and increase the attractiveness of the precious metal. Conversely, if the report shows a strong labor market, it could delay the decision to cut rates, potentially putting downward pressure on gold prices in the short term.
Performance of other precious metals
The positive performance wasn't limited to gold; it extended to other precious metals as well. Silver saw a significant price surge, benefiting from a weaker dollar and increased industrial demand. Platinum and palladium also recorded strong gains, driven by the same factors that supported gold's rise, in addition to expectations of improved demand in the automotive sector.
