Gold Shines Near $3,375 as US Dollar Weakens and Fed Rate Cut Bets Surge

Gold prices held firm above $3,350 on Monday, buoyed by a faltering US dollar and mounting expectations of a Federal Reserve interest rate cut in September. The precious metal traded around $3,375 during US market hours, recovering from an intraday dip to $3,345. A disappointing US jobs report and rising concerns over political interference in economic data have fueled market caution, supporting gold’s appeal as a safe-haven asset.

The July Nonfarm Payrolls (NFP) report revealed a mere 73,000 jobs added, well below the anticipated 110,000, marking the weakest job growth this year. Compounding the gloom, revisions slashed May and June payrolls by a combined 258,000 jobs, while the unemployment rate ticked up to 4.2%. This soft labor market data has significantly boosted expectations for a more dovish Federal Reserve, with markets now pricing in an 85% chance of a rate cut at the September meeting, a sharp rise from 37% before the NFP release. Forecasts suggest nearly 60 basis points of cuts by December, implying two quarter-point reductions and a 40% chance of a third.

However, gold’s upward momentum faces resistance from stabilizing US Treasury yields, which rebounded after Friday’s sharp drop. The 10-year Treasury yield climbed to 4.23%, and the 30-year reached 4.83%, reflecting a cautious reassessment of the Fed’s policy path amid lingering inflation concerns. These higher yields pose a headwind for non-yielding assets like gold, capping its gains for now.

Adding to market unease, recent political developments have raised questions about the integrity of US economic data. On Friday, the US President dismissed the Bureau of Labor Statistics (BLS) Commissioner, alleging falsified employment figures without evidence, claiming the data aimed to undermine his administration. This abrupt move drew sharp criticism from economists, who warned of eroding trust in key institutions. The resulting uncertainty has bolstered gold’s safe-haven status, limiting its downside.

The Federal Reserve’s internal dynamics are also shifting. A Fed Governor’s unexpected resignation, effective August 8, opens the door for the US President to appoint a replacement, potentially influencing the central bank’s direction. The President is expected to name successors for both the Fed Governor and the BLS Commissioner by week’s end, moves that could tilt monetary policy toward a more dovish stance ahead of the critical September meeting.

Geopolitical tensions are further stirring volatility. The US President has set a Friday deadline for Russia to agree to a Ukraine ceasefire, threatening steep sanctions if unmet. This follows the repositioning of two US nuclear submarines near Russian territory in response to provocative statements from a former Russian leader. These developments are injecting uncertainty into energy and risk assets, indirectly supporting gold prices.

On the economic front, June Factory Orders fell 4.8% month-on-month, slightly better than the expected 4.9% decline but a sharp reversal from May’s 8.3% gain. This week’s lighter economic calendar includes S&P Global Composite and ISM Services PMIs on Tuesday, weekly Jobless Claims on Thursday, and consumer inflation expectations on Friday. Speeches from several Fed officials, including Boston, San Francisco, Atlanta, and St. Louis Fed Presidents, may also sway market sentiment.

The US Dollar Index, tracking the dollar against six major currencies, stabilized at around 98.78 after a 1.30% drop on Friday. Despite this pause, ongoing dollar weakness continues to underpin gold’s resilience. As markets navigate economic and political uncertainties, gold remains a beacon for investors seeking stability in turbulent times.