Gold futures rallied Wednesday to the highest in nearly a month, as the dollar slumped on renewed hopes for a September interest rate cut by the Federal Reserve following U.S. data suggesting a softening labor market.
The U.S. reported first-time applications for unemployment benefits increased last week, and the number of people on jobless rolls rose to a two-and-a-half year high towards the end of June, while the Institute for Supply Management's index of services sector activity fell to a four-year low in June alongside a sharp decline in orders.
Against that backdrop, the benchmark 10-year Treasury yield tumbled to 4.352% from 4.425% on Tuesday, and the ICE U.S. Dollar index slumped 0.4% at 105.35.
The market now prices in a 67% chance of a September rate cut, up from ~63% before Chairman Jerome Powell's relatively dovish comments Tuesday at the European Central Bank conference, XS.co analyst Rania Gule said, although Powell offered no specifics on the timing of any potential Fed rate cut.
The Fed chief acknowledged that inflation is finally moving in the right direction, raising expectations among traders that a rate cut will arrive soon after the summer, ActivTrades analyst Ricardo Evangelista said, as reported by Dow Jones.
Precious metals as well as base metals are "rallying across the board on ADP and jobless claims data that reinforces the 'softening economy' narrative which will likely lead to the first rate cut in September," independent metals trader Tai Wong told Reuters, adding that traders were trying to get ahead of a potentially weak payrolls report on Friday.
Front-month Comex gold (XAUUSD:CUR) for July delivery closed +1.6% to $2,359.80/oz, its best one-day dollar and percentage gain since April 5 and highest settlement value since June 6.
Also, front-month July Comex silver (XAGUSD:CUR) finished +4% to $30.548/oz, its strongest gain and highest settlement value since June 20, and July copper (HG1:COM) closed +2.5% to $4.541/lb, also the highest since June 20.
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Gold prices appear increasingly sensitive to U.S. real rates again after earlier being sparked by various other influences such as central bank purchases, Panmure Liberum analyst Tom Price said, according to Dow Jones.
Following a ~15% jump in Q1, gold prices have settled into a $2,300-$2,400/oz range, suggesting market conditions may be normalizing, Price said, meaning a renewed focus on the longstanding correlation between U.S. real rates and gold prices, which tend to rise when rates fall and vice versa.
Still, "the net-long position being built by U.S. CFTC 'non-commercials' suggest short-term price risk remains to the upside," Price wrote.