Gold and silver prices have seen a significant surge in early U.S. trading, with spot gold reaching $4,352.60 an ounce (a 2.67% increase) and spot silver at $63.970 (up 4.20%). This surge is primarily attributed to a surprise decline in July payrolls, which has led to a reduction in near-term Fed hike expectations and a decrease in Treasury yields. The question now is whether the Fed can maintain its hawkish stance despite the softer labor data.
The FOMC's decision to hold the target range at 3.50% to 3.75% on July 29, with a 9-3 vote, suggests a potential shift in monetary policy. The chair's press conference emphasized the rise in nominal and real yields, but the latest payrolls data has reversed some of that rate pressure. Nonfarm payrolls fell by 23,000 in July, the unemployment rate remained at 4.1%, and the 10-year Treasury yield dropped to 4.60%. This has led to a 44.0% implied probability of a September hike, down from 54.7%.
The Strait of Hormuz remains a critical factor in the gold market, with a deal between Iran and Oman currently being discussed. However, the control over traffic and fees is a contentious issue, and the U.S. has rejected Iranian charges on ships. The strait previously handled one-fifth of traded oil and natural gas, and the conflict has led to Brent crude trading as high as $113. The immediate market effect was mixed, with crude easing after Thursday's rally, but the unresolved U.S.-Iran framework continues to support a geopolitical premium in gold and energy-led inflation risk.
The U.S.-Japan yen intervention is another significant cross-asset factor. The coordinated yen-buying operation, the first since 1998, followed a slide in the yen to a 40-year low. This intervention briefly pressured the dollar and helped gold through the FX channel. However, the broader dollar reaction has been uneven, with the DXY softer after the payrolls miss, as traders assess the impact of official yen support on reserve-market behavior.
Global markets have reacted differently to the jobs data. S&P 500 futures rose 0.5%, Dow futures gained 0.33%, and Germany's DAX was up 1.0% in midday European trade. Japan's Nikkei 225 slipped 0.1%, South Korea's Kospi fell 0.6%, and Taiwan's Taiex lost 0.4%. The key outside markets see Nymex WTI crude oil prices weaker at $76.78 a barrel, while Brent crude was lower after Thursday's rally. The U.S. dollar index is weaker, and the yield on the benchmark 10-year U.S. Treasury note is trading near 4.6%.
From a technical perspective, gold bulls aim to push prices above the $4,372.40 to $4,450.00 resistance zone, with a sustained move targeting $4,500.00 and then $4,494.00. Bears, on the other hand, see a potential breakdown below $4,228.90, with deeper targets at $4,120.00 and $4,000.00. For silver, bulls target the $65.22 to $70.00 area, with a move above that zone targeting $72.00 and then $70.00 to $72.00. Bears see a potential breakdown below $61.05, with deeper targets at $55.00 and $45.00 to $50.00.
In conclusion, the recent surge in gold and silver prices is a response to the surprise payrolls data and the associated reduction in Fed hike expectations. The Strait of Hormuz and U.S.-Japan yen intervention are additional factors influencing the market. While global markets have shown mixed reactions, the overall trend suggests a potential shift in monetary policy, which could have significant implications for the economy and financial markets. As an investor, it's crucial to stay informed and adapt strategies accordingly.
