Gold News Analysis

Gold prices increased on Wednesday, with gold reaching its highest settlement in a month. The rally was driven by weakness in the U.S. dollar and bond yields, caused by weak economic data.

A decline in the dollar and Treasury yields lifted gold prices. The dollar weakened after the release of data showing rising jobless claims and a shrinking services sector. The data pointed towards a potential slowdown in the U.S. economy, reducing expectations of aggressive interest rate hikes from the Federal Reserve.

Lower interest rates typically make gold more attractive to investors.

Gold futures for August delivery settled at $2,369.40 per ounce, up $36 or 1.5%.

The economic data that triggered the rise in precious metals prices

• A reading of 48.8% (An ISM index reading below 50 indicates contraction, while a reading above 50 indicates expansion) for the Institute for Supply Management's index of services businesses, the lowest since May 2020.

  This is especially worrying because May 2020 coincided with the peak of the COVID-19 pandemic, which triggered a severe recession. Current data suggest a contraction as deep as that period.

• An increase of 4,000 in new jobless claims to 238,000 for the week ending June 29th.

  More people are filing for unemployment benefits, which indicates an increase in layoffs. In turn, a potential sign of a slowing economy, businesses tend to lay off workers when there is a decrease in demand for goods and services and this could be due to rising interest rates or inflation.

• A report by ADP showing U.S. businesses added only 150,000 new jobs in June, the smallest increase in five months.

  Slower job growth suggests a cooling down of the labor market, which has been quite strong in recent times.

  Interest rate hikes could be one of the reasons behind this slowdown. Fed has been raising interest rates to combat inflation. This can make borrowing money more expensive, potentially causing businesses to cut back on hiring.
  
  

Weak data drove down the yield on the 10-year Treasury and weakened the U.S. dollar. Lower yields and a weaker dollar generally make dollar-denominated precious metals like gold more affordable for investors using other currencies.

Hopes of a potential interest rate cut by Fed further boosted gold prices. Federal Reserve Chairman Jerome Powell acknowledged that inflation is starting to trend downwards, but emphasized it was too early for the central bank to make any decisions on interest rates.