Spot gold jumped more than 2% on Thursday, reclaiming the US$4,100 level in a single session. Weaker-than-expected nonfarm payrolls sharply reduced investors' expectations that the Federal Reserve would raise interest rates this year, weighing on the US dollar. At the same time, ongoing geopolitical uncertainty and continued central bank gold purchases provided strong upward momentum for the precious metal.

The primary catalyst behind gold's sharp rally was undoubtedly the significantly weaker-than-expected US June nonfarm payrolls report. According to data released by the US Department of Labor, the US economy added only 57,000 jobs in June—just half of economists' previous forecasts. More concerning was the substantial downward revision to April and May employment figures, which were revised lower by a combined 74,000 jobs, indicating that the US labour market is cooling much faster than markets had anticipated.

The more profound impact lies in the market's repricing of the Federal Reserve's monetary policy outlook. Previously, with inflation remaining above the Fed's 2% target and Fed Chair Waller repeatedly delivering hawkish remarks, markets had been firmly betting that the Fed would raise interest rates before the end of the year. According to the CME FedWatch Tool, before the payrolls data was released, markets assigned a 66% probability of a rate hike by September. However, the disappointing employment report completely reversed those expectations. Following the release, the probability of a September rate hike fell to around 51%, while the likelihood of a July rate hike dropped sharply from nearly 30% to below 20%.

Gold typically performs well in a low-interest-rate environment. Supported by the sharp decline in rate hike expectations, the gold market staged a strong rally. Once again, the negative correlation between gold prices and real interest rates was clearly demonstrated. As expectations for higher interest rates faded, the opportunity cost of holding gold declined, reinforcing its appeal as both a safe-haven and a store-of-value asset.

Beyond monetary policy—the key driver—geopolitical risks continue to provide important support for gold prices. Rising geopolitical tensions were the dominant factor behind gold's performance during the first half of the year, with the US-Iran conflict playing a particularly significant role. At present, both countries are within the 60-day negotiation window established under the Memorandum of Understanding framework. However, this optimistic diplomatic narrative stands in stark contrast to ongoing military tensions and covert intelligence activities. In addition, the funeral ceremonies for former Iranian Supreme Leader Ayatollah Ali Khamenei are scheduled to take place from 4 July to 9 July. During this sensitive period of political transition, any unexpected event could become the trigger for renewed regional instability. Should geopolitical or economic conditions deteriorate again, gold is likely to regain further upward momentum.

Beyond short-term price fluctuations, structural demand from the global official sector is building a solid long-term foundation for gold. According to the World Gold Council, global central banks returned to net buying in May, with official gold reserves increasing by 41 tonnes during the month. The primary reason central banks continue to accumulate gold aggressively is to hedge against geopolitical risks while reassessing confidence in the US dollar-based monetary system.

Market Insight:

Gold continues to trend higher on the 4-hour chart, with both the MACD lines and histogram expanding above the zero line, indicating strengthening bullish momentum. However, if upcoming economic data continues to demonstrate resilience in the US economy, or if geopolitical tensions ease more than expected, leading to a significant improvement in market risk sentiment, gold prices could still face downward pressure. Nevertheless, should gold decline by more than 10% from current levels, it would likely trigger strong dip-buying demand from long-term investors across multiple regions, providing robust support for prices.