Gold outlook turns bullish as weak US jobs data lifts rate-cut hopes; analysts see further upside
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Gold prices are likely to remain on a firm footing in the near term as a weaker-than-expected US labour market report has strengthened expectations of a softer Federal Reserve policy stance while a weaker US dollar and lower Treasury yields have added to bullion's appeal.
Manav Modi, Commodities Analyst at Motilal Oswal Financial Services, said gold was set for its strongest weekly performance since late January, supported by the softer dollar, declining crude prices and reduced expectations of a near-term Fed rate hike.
US non-farm payrolls unexpectedly fell by 23,000 in July, against expectations of an increase of around 85,000. Employment for May and June was also revised lower by a combined 103,000. Following the report, markets reduced the probability of a September Fed rate hike to around 44%, from about 55% previously. The weak labour-market data pushed US Treasury yields lower and the dollar to a seven-week low, creating a favourable backdrop for non-yielding assets such as gold.
"Gold prices were set for their strongest weekly performance since late January, supported by a weaker U.S. dollar, softer crude prices and reduced expectations of a near-term Federal Reserve rate hike after a weaker-than-expected U.S. labour market report," Modi said.
Gold subsequently climbed to a seven-week high, gaining more than 8% during the week. Silver also rallied sharply, reflecting the broader improvement in precious metals sentiment.
Ponmudi R, CEO of Enrich Money, said precious metals benefited from declining Treasury yields and a softer US dollar after the employment data reduced expectations of further Federal Reserve tightening. "Despite the shift in rate expectations, inflation remains a key risk, suggesting that the Federal Reserve's next policy move will continue to depend on upcoming inflation and labour-market data," he said.
Analysts see further upside
The near-term outlook for gold has turned increasingly constructive, with technical indicators pointing to a continuation of the recovery if key support levels hold.
On the international market, COMEX gold ended the week near $4,400 after gaining 7.13%. The metal reclaimed its 20-week and 50-week exponential moving averages (EMAs), signalling an improvement in the medium-term trend. The weekly RSI rose to 51.20, moving above the neutral 50 mark, while the daily RSI stood at 66.06, indicating strong short-term momentum.
Immediate resistance for COMEX gold is placed at $4,470-$4,500, followed by $4,600-$4,630. A sustained close above $4,630 could open the way for another leg higher. On the downside, support is seen at $4,330-$4,300 and then $4,230-$4,200.
The domestic outlook is similarly positive. MCX Gold October futures ended the week near ₹1,52,000, gaining 5.89% and breaking above the 20-week EMA. Immediate resistance is seen at ₹1,52,200-₹1,52,800, followed by ₹1,54,100-₹1,54,800. Support is placed at ₹1,50,000-₹1,50,700 and ₹1,48,000-₹1,48,600.
Jateen Trivedi, VP Research Analyst—Commodity and Currency at LKP Securities, said gold had broken out of the prolonged consolidation phase seen through most of July, when MCX Gold remained largely confined to the ₹1,40,000-₹1,45,000 range. "The recent rebound indicates renewed buying interest, with the broader trend turning constructive after prices found a strong base at lower levels," Trivedi said.
He expects the positive momentum to continue as long as COMEX gold sustains above $4,150 and MCX gold holds above ₹1,47,000. In the near term, MCX gold is expected to trade in the ₹1,47,500-₹1,52,000 range.
US inflation data next trigger
The next major trigger for gold will be US inflation data, with the July Consumer Price Index (CPI) and Producer Price Index (PPI) due this week. The readings could provide fresh clues on the timing of the Fed's next policy move.
A further moderation in inflation, coupled with continued weakness in the labour market, could strengthen expectations of monetary easing and provide additional support to gold. Conversely, sticky inflation could limit the scope for a dovish Fed pivot and trigger some profit-taking in bullion.
Meanwhile, developments around the Strait of Hormuz and broader Middle East tensions remain important risks for both crude oil and inflation expectations. "Overall, the near-term outlook has become increasingly constructive for precious metals, while the energy complex remains more finely balanced," Ponmudi said.
With the Fed's policy outlook increasingly dependent on incoming data, gold's next major move is likely to be determined by the interplay between US inflation, labour-market weakness, Treasury yields and the dollar.