- Gold prices climbed to a seven-week high as traders reduced expectations for another Federal Reserve rate hike.
- Falling oil prices and hopes for a Strait of Hormuz agreement eased inflation fears, supporting bullion.
- Attention now shifts to Friday's US Nonfarm Payrolls report, which could determine whether gold extends its rally toward $4,300.
Gold prices hovered near a seven-week high on Thursday, extending gains for a fourth consecutive session as easing expectations for another Federal Reserve interest rate hike boosted demand for the precious metal. Spot gold traded above $4,270 per ounce, building on Wednesday’s strongest daily advance since February. The move comes as investors increasingly believe the Fed may be approaching the end of its tightening cycle following a series of softer US economic reports.
The latest rally has also been supported by improving geopolitical sentiment in the Middle East. Hopes that negotiations over the Strait of Hormuz could restore normal shipping flows have pushed crude oil prices sharply lower, reducing inflation expectations and weakening the case for further aggressive US interest-rate increases.
Fed rate expectations continue to support gold
Gold’s recent strength has been driven largely by shifting expectations for US monetary policy.
Markets have steadily reduced the probability of another Fed rate hike after weaker US employment and business activity data suggested the economy may be cooling. Expectations for a September rate increase have fallen sharply over recent days as investors reassess the central bank’s next move.
San Francisco Fed President Mary Daly also reiterated support for holding interest rates steady while policymakers gather more evidence on inflation and economic activity. Because gold does not generate interest income, it tends to perform better when investors expect lower interest rates or fewer rate hikes. Declining Treasury yields and a softer US dollar have further improved bullion’s appeal.
Middle East diplomacy eases inflation concerns
Another key catalyst behind gold’s rally has been developments surrounding the Strait of Hormuz.
Reports that negotiations involving Iran and regional mediators are progressing have raised hopes that energy supplies could normalize after months of disruption. Brent crude has fallen below $80 per barrel as traders remove part of the geopolitical risk premium from oil markets.
Lower energy prices reduce inflation pressures across the global economy, reinforcing expectations that the Federal Reserve may not need to tighten policy as aggressively as previously feared. While easing geopolitical tensions often reduce traditional safe-haven demand for gold, the impact of lower interest-rate expectations has proved to be the stronger market driver this week.
All eyes turn to US Nonfarm Payrolls
The next major catalyst for gold will be Friday’s US Nonfarm Payrolls report. After weaker ADP employment figures and softer economic indicators earlier this week, investors will closely examine whether official payroll growth confirms that the US labour market is beginning to slow. A weaker-than-expected jobs report would likely strengthen expectations that the Fed will remain on hold, potentially providing another boost for gold prices.
Conversely, a stronger employment report could revive expectations for another rate hike later this year and trigger some profit-taking after bullion’s recent rally.
Gold market watches US jobs report for next direction
Attention is now shifting to Friday’s US Nonfarm Payrolls report, which is expected to be the next major catalyst for gold prices. A weaker-than-expected employment report would reinforce expectations that the Federal Reserve can afford to keep interest rates unchanged for longer, potentially providing further support for bullion. Conversely, a stronger labour market could revive expectations of tighter monetary policy, strengthening the US dollar and Treasury yields while limiting further upside for gold.
Investors will also continue monitoring developments surrounding the Strait of Hormuz, as any setback in diplomatic negotiations could quickly revive geopolitical safe-haven demand for the precious metal.
Gold price outlook
The gold price outlook remains constructive as long as expectations for further Federal Reserve tightening continue to ease. Bulls have regained momentum after pushing XAU/USD to a seven-week high, with the psychological $4,300 level now emerging as the next major resistance. A sustained break above that barrier could encourage fresh buying and extend the rally deeper into August.
However, traders are likely to remain cautious ahead of the US jobs report, which could reshape interest-rate expectations and determine whether gold has enough momentum to continue its advance.