Gold prices witnessed a significant surge during the North American trading session on Thursday, driven by a confluence of economic factors and geopolitical developments. The US Department of Labor reported a dip in initial jobless claims for the week ending February 8, falling to 213,000, below the forecasted 215,000. This decrease indicates a robust labor market, potentially influencing the Federal Reserve's policy stance. Concurrently, US inflation reports have led the Fed to hold interest rates steady, a shift from its previous easing policy approach. Adding to the economic landscape, President Trump announced the imposition of tariffs on certain American trading partners, further impacting market dynamics.
The labor market's strength, evidenced by the decline in jobless claims, suggests a stable economic environment. The drop in claims aligns with the broader trend of employment growth, providing a foundation for economic stability. Meanwhile, the January US Producer Price Index (PPI) showed a 0.4% month-over-month increase, surpassing the anticipated 0.3%, and marked a 3.5% rise over the past year. These figures indicate rising production costs, which could have implications for consumer prices.
Federal Reserve Chair Jerome Powell commented on the current state of inflation, noting that while the US is nearing its inflation targets, it is essential to maintain a restrictive policy stance for now. This perspective reflects the central bank's cautious approach to managing economic growth and inflation rates.
"Whatever they charge us, we will charge them." – Donald Trump
President Trump's recent tariff announcement underscores potential trade tensions that could influence global economic conditions. The tariffs are expected to affect several trading partners, aligning with Trump's promise of reciprocal trade measures. This development introduces a layer of uncertainty in international markets, contributing to fluctuations in commodity prices, including gold.
In response to these economic indicators and geopolitical tensions, gold prices climbed during Thursday's session. The precious metal's rally is further supported by central banks' continued acquisition of gold reserves. For the third consecutive year in 2024, central banks purchased over 1,000 tons of gold, reinforcing its status as a reliable store of value amidst uncertain economic conditions.
The US 10-year Treasury bond yield experienced a significant drop of ten basis points, settling at 4.519%. This decline in yields enhances gold's attractiveness as a non-yielding asset, especially when real yields also plunged by eight basis points to 2.072%. The inverse relationship between real yields and bullion prices becomes evident as investors seek refuge in gold amid declining yields.
The US Dollar Index (DXY) fell by 0.61%, contributing to the rally in bullion prices. A weaker dollar typically makes gold more affordable for holders of other currencies, bolstering demand for the metal. The October 31 cycle high turning support at $2,790 is anticipated to be the next point of resistance for gold prices, followed by January 27's swing low of $2,730.
Market participants are also closely monitoring expectations for future monetary policy actions. Money market fed funds rate futures currently price in 38.5 basis points of easing by the Federal Reserve in 2025. These expectations indicate a potential shift in monetary policy that could impact long-term economic growth and inflation dynamics.
The World Gold Council reported that central banks added 1,136 tonnes of gold worth approximately $70 billion to their reserves in 2022. This data highlights the strategic value placed on gold by central banks seeking to diversify reserves and hedge against economic uncertainties.