Gold gains momentum above $4,100 after weak US NFP data

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Gold price (XAU/USD) gains traction to around $4,125 during the early Asian session on Friday. The precious metal extends the rally after weaker-than-expected US Nonfarm Payrolls ‌(NFP) data reduced expectations of Federal Reserve (Fed) interest rate hikes this year.

Gold price edges higher to near $4,125 in Friday’s Asian session.
US Nonfarm Payrolls increased by 57,000 last month, weaker than expected.
US and Iran concluded a round of indirect talks on Wednesday with no sign that they had made headway toward lasting peace.

Data released by the US Bureau of Labor Statistics (BLS) on Thursday showed that the US economy added 57,000 jobs in June, below the market consensus of 110,000. Meanwhile, the Unemployment Rate fell to 4.2% during the same period, down from 4.3% in May. That followed a report on Wednesday showing that US private payrolls increased less than expected in June.

"The lower-than-expected jobs number portends to less likelihood of potential rate hikes later this year. As we know, gold has a tendency to perform better in lower interest rate environments," said David Meger, director of metals trading at High Ridge Futures. "Hence, we saw a significant rally in the gold market on the back of that," he added.

Reuters reported that the US and Iran concluded a round of indirect talks on Wednesday with no sign that they had made headway toward lasting peace. Uncertainty or signs of a prolonged conflict in the Middle East could raise inflation worries, prompting traders to raise their bets on rate hikes and weighing the non-yielding bullion.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.