Gold rally at risk as US jobs data, tariff moves stir volatility

Business Standard

02-07-2025

Gold: Up for the second day as US Dollar slumps
Gold Performance:
Spot gold with a daily gain of 1.49 per cent at $3312 on June 30; thus, it posted the largest six-month gain since 2007 as it rose more than 25 per cent in the fi₹t half of 2025.
On Tuesday, the yellow metal traded between $3302 and $3358 as it rallied to the highest since June 24 before surrendering some of its daily gains on a recovering US Dollar.
At the time of writing this report, the spot gold was changing hands at $3338, up 1.06 per cent on the day, while the MCX August contract at ₹97,287 was up by 1.26 per cent.
Trump Tax bill passes Senate:
On Tuesday, the US Senate narrowly passed $3.3 trillion Trump's tax and spending cut bill with a 51-50 vote.
The bill, which includes provisions to raise the debt limit, cut Medicaid and other social safety net programs, and tax breaks for certain groups, will go to the House, which is expected to vote on the bill this week.
As the bill faces opposition from some of the Republicans, it is difficult to assess whether it can be passed in the House, which has a slim Republican majority.
Sintra European Central bank conference:
Fed Chair Powell, at a conference hosted by the European Central Bank in Sintra, Portugal, on July 1, reiterated his wait-and-see stance on rates as he cited a steady US economy. He said that the Fed's decision at the upcoming month-end FOMC meeting will depend on the economic outlook, though he would not take any meeting off the table or put it directly at the table as he signalled a flexible approach in the Fed's future monetary policy. In addition, he said that he expects the impact of tariffs to show up in inflation data in the coming months as uncertainties continue to linger.
Data roundup:
US data released on July 1 were somewhat better than expected as ISM manufacturing, although it contracted for the fourth straight month in June, came in at 49 -- three-month high-- Vs the estimate of 48.80, but internals were weak as ISM new orde₹ and employment contracted more than expected while prices paid at 69.70 were above the forecast of 69.50. JOLT's job openings (May), supported by hiring in leisure and hospitality, rose to 7,769,000, the highest level since November 2024, and beat the forecast of 7,300,000 as the job openings rate rose from 4.4 per cent to 4.6 per cent versus the forecast of 4.4 per cent.
Quits rate rose from 2 per cent to 2.1 per cent (forecast 2 per cent ) while the layoffs rate fell from 1.1 per cent to 1 per cent, though hiring remained mixed in other sectors.
Euro-area CPI rose 2 per cent y-o-y in June, up from May's 1.9 per cent as core inflation held steady at 2.3 per cent.
Upcoming data:
Today's major US data on cards include ADP employment change (June). However, the focus is mainly on the nonfarm payroll report (June) to be released on July 3. The report is likely to show a decline in hiring and an uptick in the employment rate. ISM services report, yet another crucial report, will also be released on the same day.
COMEX gold inventory:
COMEX gold inventory at 37.04MOz is presently down nearly 17 per cent from the record high of 45.07MOz on demand for physical delivery.
China's largest gold mine goes for $1.2 billion acquisition:
China's Zijin Mining Group has announced an agreement to acquire Kazakhstan Raygorodok gold mine for $1.2 billion. The mine is currently producing 5.50 tons of gold annually and has a remaining mine life of 16 yea₹.
ETF:
Total known global gold ETF holdings as on June 30 stood at a two-year high level of 90.56MOz, up over 9per cent YTD as ETFs recorded inflows for the fifth straight week in the week ending June 27.
US Dollar and yields:
On July 1, the US Dollar Index fell to a fresh cycle low of 96.33, the lowest since February 2022, before recovering on US data and Powell's speech in which he cited the Fed's data-based approach towards further monetary policy decisions.
The Index, at the time of writing, was hovering at 96.82, down nearly 0.6per cent on the day.
Ten-year yields sank to 4.18per cent, the lowest since May 1, before recovering on US data. Yields at 4.25 per cent were up nearly 2 bps.
Gold outlook:
Trump's tax bill is set to widen US deficits, which is positive for gold. Gold's $100 rally from June 30th low has been driven primarily by weaker Dollar on rate cut notions and uncertainty ahead of Trump's July 9 tariff deadline. The US data released on Tuesday were mostly encouraging.
Going forward, a lot will depend on the US nonfarm payroll report, as a weak job report will boost the rate cut odds. Tariff headlines are expected to create huge volatility until the dust settles.
US Dollar Index remains quite vulnerable and is expected to fall further; however, if the US job report turns out to be reasonably strong, the US Dollar Index may stabilise in the very short term, provided Trump's tariff decisions don't hurt the Greenback further. In that scenario, gold will give back a significant portion of its gains made this week.
As US nonfarm payroll data, the House voting on Trump's tax bill, and tariff developments occur together this week, the market is expected to be highly choppy and volatile.
As the Trump Administration frantically tries to close at least some major deals before the July 9 deadline, a flurry of tariff news is expected to hit traders' screens.
We suspect that gold, without the tariff factor as a support, will be vulnerable unless US job data disappoint. Gold is expected to fall sharply in case the Trump Administration decides to extend the July deadline.