Gold prices extended their rally on Friday, heading for the strongest weekly gain since January, as a sharp decline in oil prices over the week tempered inflation worries and investors braced for US employment data that could influence the Federal Reserve's policy path.
Spot gold climbed about 0.6% to $4,262.39 an ounce in early trading, bringing its weekly advance above 5% after touching a seven-week high on Thursday. US gold futures rose 0.5% to $4,321.50.
The precious metal has decisively moved away from the $4,000 support level that had anchored its recent consolidation. However, Friday's payrolls report represents the most immediate test of whether the recovery can sustain its momentum.
Oil's weekly retreat shifts the inflation narrative
Gold's rebound is partly driven by a reversal in one of the factors that weighed on it earlier during the Middle East conflict: surging energy prices. Brent crude rebounded about 1% to $83.38 a barrel on Friday as geopolitical tensions resurfaced, but it was still on track for a weekly decline of roughly 7.5%.
That broader retreat has reduced fears of another energy-driven inflation shock and eased pressure on interest-rate expectations. For gold, which pays no interest, lower expected inflation can diminish the need for aggressive monetary tightening, making falling bond yields and less hawkish Fed expectations particularly supportive.
StoneX market analyst Matt Simpson sees easing Middle East concerns and the decline in energy prices as key reasons gold has broken out of its multi-week range above $4,000. In his assessment, the metal is beginning to show the foundations of a more meaningful technical recovery.
Still, the geopolitical backdrop remains unstable. Renewed Houthi attacks and Iranian proposals to restrict some vessels through the Strait of Hormuz mean oil could rebound quickly, potentially reviving the inflation pressure that previously weighed on bullion.
Payrolls could decide whether the breakout survives
Attention now turns to the July US employment report, due at 8:30 am New York time on Friday, according to the Bureau of Labor Statistics. Economists expect payrolls to have increased by about 80,000 after a 57,000 rise in June, with unemployment forecast to remain at 4.2%.
Markets are unusually divided over the Fed's next step, with traders assigning roughly a 55% probability to a September rate increase, down from about 63% a week earlier. A weaker jobs report could pull Treasury yields lower and further reduce expectations for tighter policy. A stronger reading would risk reviving the higher-for-longer trade and putting renewed pressure on gold.
Tickmill analyst Joseph Dahrieh views the employment report as the immediate catalyst. His view is that softer hiring would reinforce expectations for a less aggressive Fed and support bullion through lower yields, while stronger data could strengthen the dollar and limit the rally.
The Fed remains the hurdle to a $4,600 move
The technical picture has improved, but the Fed remains an obstacle for gold bulls. St Louis Fed President Alberto Musalem said the central bank should have raised rates by 25 basis points at its July meeting. He favours earlier, gradual increases rather than risking larger and more disruptive moves later if inflation remains elevated.
That makes Friday's labour data especially important. Gold's latest advance increasingly depends on whether economic numbers allow yields to retreat without reigniting concerns about inflation. Simpson regards $4,000 as established support and sees scope for gold to recover towards $4,600 if buyers continue to step in on declines. The seven-week high strengthens that case, but a strong payrolls surprise could quickly challenge it.
Silver and platinum also advanced on Friday and were headed for weekly gains, while palladium slipped slightly on the day.
This article is for informational purposes only and does not constitute financial advice.
