Spot gold closed the week ending August 7 with its largest weekly gain since January, and Mirae Asset ShareKhan's Praveen Singh says buying the dips is a better strategy than chasing the rally, according to Business Today. The metal broke free of a seven-week-old consolidation range of $3,950-$4,200 to close with a weekly gain of 7.31% at $4,342. By the night of August 10, spot gold was trading steady at $4,345, Business Today reported.
What drove the breakout
Business Today attributed the rally to a dovish Federal Open Market Committee (FOMC), the possibility of a Strait of Hormuz deal and a disappointing US nonfarm payroll report for July. The yellow metal has also been supported by China extending its gold buying spree, the report noted.
Strait of Hormuz geopolitics and oil
Oil prices fell nearly 9% last week but jumped on Monday after Iran demanded US concessions to reopen the Strait of Hormuz, according to Business Today. At the time of writing, Brent oil futures were trading with a gain of nearly 3% at $86.07.
Iran and Oman are said to be close to a deal that would lead to a partial reopening of the Strait of Hormuz. However, Iran has tied reopening to US concessions, and the National Security Council has laid out six conditions. Those conditions include:
- The US ending its threats to Iran
- Halting military action against Iran and its regional allies
- Withdrawing US forces involved in blockading Iran
- Reparation for damage caused in the conflict
- Lifting sanctions and unfreezing Iranian assets
In a related development, Iran's Supreme Leader Mojtaba Khamenei appointed Major General Mohsen Rezaee, his former senior military adviser, as the new secretary of the Supreme National Security Council (SNSC) on August 9. Rezaee replaced Mohammad-Bagher Zolghadr and is a longtime advocate for full Iranian control over the Strait. The Wall Street Journal reported Sunday that US President Donald Trump may declare victory in the war if the Strait of Hormuz is opened and thus may not pursue a nuclear deal with Iran, although complications from Iran's new demands may affect that possibility, Business Today said.
Gold may rise to $4,500 in the short term if oil prices stabilize at lower prices.
US jobs data, dollar and yields
The July nonfarm payroll report, released on July 7 according to Business Today, showed the job market is still not out of the woods. Key figures:
- Nonfarm payrolls unexpectedly declined by 23,000 versus an estimate of +80,000
- A two-month net revision of -103,000 pushed the three-month average down from 111,000 to 20,000
- Average earnings rose 0.1% month-on-month versus a 0.3% forecast and 0.3% prior; year-on-year earnings fell from 3.5% to 3.2%, the lowest since May 2021
- The labour force participation rate fell from 61.6% to 61.4%, while unemployment edged lower from 4.2% to 4.1%
- Government education jobs dropped by 50,000; even accounting for that loss, the report was weak
The US Dollar Index closed with a loss of 0.35% at 99.56 on August 7, extending its decline to a second straight week, as lower oil prices dim the prospects of a Fed rate hike. Two-year US yields at 4.20% were down nearly 2% for the week, while ten-year yields fell 1.90% to 4.64%. At the time of writing on Monday, the Dollar Index at 99.72 was up 0.20% for the day as yields hardened amid firmer oil prices; two-year yields at 4.23% were up 3 basis points and ten-year yields at 4.68% were up 4 basis points.
China and Japan data roundup
China's inflation report released on August 9 showed that oil-led inflation impact may be fading, Business Today reported. China's CPI edged lower from 1% m-o-m in June to 0.5% y-o-y in July, against a 0.80% forecast, while PPI cooled from 4.5% y-o-y in June to 3.9% in July, matching the 3.9% forecast. Japan's BoP current account adjusted fell from 3,064 billion yen in June to 1,396 billion yen in July, against an estimate of 2,514 billion yen.
Key levels and data points
| Metric | Level / change |
|---|---|
| Spot gold weekly close (week to Aug 7) | $4,342, +7.31% weekly |
| Spot gold at time of writing (Aug 10 night) | $4,345 |
| Seven-week consolidation range | $3,950-$4,200 |
| Brent oil futures at time of writing | $86.07, nearly +3% |
| US Dollar Index close (Aug 7) | 99.56, -0.35% weekly |
| US 2-year yield (Aug 7 week) | 4.20%, down nearly 2% |
| US 10-year yield (Aug 7 week) | 4.64%, down 1.90% |
| July nonfarm payrolls | -23,000 vs +80,000 expected |
| China July CPI | 0.5% y-o-y vs 0.80% forecast |
| China July PPI | 3.9% y-o-y vs 3.9% forecast |
| Japan BoP current account adjusted (July) | ¥1,396bn vs ¥2,514bn estimate |
Outlook for traders
Mirae Asset ShareKhan's Praveen Singh said that instead of chasing the rally, buying the dips may work as a better strategy for gold right now, according to Business Today. The short-term $4,500 target is conditional on oil prices stabilizing at lower prices. For commodity traders and analysts, the report points to three variables that will determine whether the breakout extends: whether Iran's conditions for reopening the Strait of Hormuz are resolved, whether oil holds at lower levels, and whether China extends its gold buying spree.
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