Gold Prices Hit Highest for a Month at $2,400 per Ounce

Three 1kg gold bullion bars lay on the counter in a gold dealers in Birmingham's jewelery quarter in Birmingham, England, on Dec. 13, 2023. (Christopher Furlong/Getty Images)

Gold prices broke through a monthly high during the last trading day of the week after a disappointing U.S. employment report showed lower job additions in June.

Spot gold hit a high of $2,393 per ounce on Friday, eclipsing a month-long high of roughly $2,388 hit on June 7. The new high also appeared to have broken the downward trend triggered after gold prices hit a peak of $2,450 in mid-May.

The surge in gold prices came after the U.S. Bureau of Labor Statistics released the latest employment numbers on Friday.

Total U.S. nonfarm payrolls grew by 206,000 last month, lower than that of May. It was also the second-lowest payroll growth this year.

In addition, the agency revised down nonfarm payroll numbers for May by 54,000 jobs and for April by 57,000 jobs. The unemployment rate grew by 0.1 percentage point on a monthly basis and was 0.5 points higher compared to June last year.

Dismal job numbers signaled a potential softening in the labor market, boosting expectations of a Federal Reserve rate cut in the coming months and triggering a rally in gold prices.

According to the World Gold Council’s Mid-Year Outlook report, gold has been one of the best-performing assets so far in 2024. It netted a 12.74 percent gain in the first six months of the year, coming only second to stocks.

WGC predicts gold prices to remain range-bound if current market expectations continue as is, which includes the Fed keeping interest rates between 5.25 to 5.5 percent, a restrained recovery in the economy, the U.S. dollar remaining flat to slightly down, and geopolitical risks continuing to create uncertainty.

“However, there’s a clear path for gold to outperform from here, likely fuelled by Western flows. Conversely, in the event that central bank demand drops drastically, rates remain high for longer and Asian investor sentiment flips, we could see a pullback in the second half,” the group predicted.

Interest Rates and Gold

Investors are now closely watching Fed action on interest rates to determine the likely direction of gold prices. The Fed raised rates from 0.25 percent in March 2022 to a range of 5.25–5.50 percent in July 2023, and rates have remained at that level until now.

The 12-month inflation rate has been above 3 percent for every single month since June 2023, higher than the Fed’s target of 2 percent. This is preventing the Fed from committing to cut interest rates.

During the recent policy-making meeting in June, Federal Reserve officials said that the agency could even raise rates if inflation continued to remain elevated.

Investors estimate that rate cuts could start in a couple of months. According to the CME FedWatch tool, an overwhelming 92.2 percent of interest rate traders expect the Fed to hold the current rates at its upcoming meeting this month, as of July 6 at 7:30 a.m. ET.

A sizable number of traders only expect an interest rate reduction of 25 points in the September meeting.

According to a July 4 post by the research group Economist Intelligence Unit (EIU), gold prices are expected to continue strengthening in 2024-25 as the Fed and the European Central Bank (ECB) reduce interest rates.

“We expect gold prices to remain elevated in 2024, with the price averaging US$2,312/troy oz, up by 19 percent from 2023,” it said. “We forecast that the Fed and the ECB will continue to lower interest rates next year, and therefore expect gold prices to increase further to average US$2,498/troy oz in 2025.”

“Additionally, softer interest rates and safe-haven demand will revive interest in exchange-traded funds (ETFs). We expect net investments in gold ETFs to turn positive this year.”