Gold and silver jump near the peak, what's next for the markets?
Gold prices settled on Monday near the highest level in more than 7 weeks, recording a notable rise supported by key factors of a weak US dollar and lower US government bond yields.
The rally comes at a sensitive time, as global markets are awaiting the release of influential US jobs data, which could determine the next direction of monetary policy and safe-haven assets.
The drivers of gold's rise towards $43444
Gold trading today saw a strong move, with the spot price rising 1% to $4344 per ounce, while gold futures on US exchanges jumped 1.1% to trade at $4377.40.
Analysts attribute this performance to two simultaneous factors:
-Weakness in the U.S. dollar index: The dollar index stabilized near a two-month low, which means it is cheaper for investors dealing in other currencies to buy gold, boosting external demand.
-Lower US bond yields (yields): Especially 10-year Treasury yields, as lower yields make gold, a non-income earning asset, a more attractive investment compared to bonds.
Market outlook: US data and its impact on the yellow metal
The U.S. Non-Farm Payrolls report will be released this week, specifically on Tuesday.
Market expectations suggest that any signs of weakness in the U.S. labor market could support gold to remain on an upward trajectory, for the following reasons:
- Keep bond yields limited: This keeps gold's relative advantage intact.
- Pressure on the dollar: Supports dollar-denominated gold prices.
- Strengthening expectations of monetary policy easing: The jobs report weakens the odds of the Federal Reserve tightening monetary policy.
This follows the Federal Reserve's decision last week to cut interest rates by 25 basis points, amid signs of a possible "pause" due to inflation concerns.
Investors currently expect only two rate cuts over the next year, making the upcoming jobs report a litmus test for these expectations.
Silver shines near record highs
The strong performance was not limited to gold, but also extended to silver, with silver prices rising today to $63.35 per ounce, trading close to the historic record price of $64.65 set last Friday. Silver's strong performance shows the cautious optimism and strong demand for precious metals as a whole in the current economic environment.
What's the outlook?
In times of low interest rates and weak market confidence, non-income generating assets such as gold and silver become more attractive.
Gold is considered by many to be a traditional safe haven in times of economic uncertainty and declining strength of fiat currencies.
Precious metals markets have been on a bull run supported by a combination of technical and economic factors, while gold and silver are flying on the wings of a weaker dollar.
The upcoming US jobs data is the most important milestone that could determine whether the bullish trend will continue or see a pullback and correction.
