Gold jumps as weak dollar, trade talks uncertainty drive safe-haven demand
Futures prices rose to near $3,360 an ounce by the afternoon. Traders are pricing in higher odds of at least two US interest rate cuts before 2026.
With markets increasingly optimistic that a rate cut from the Federal Reserve could be around the corner, Thursday's jobs report takes on even more importance this week. Investors will be watching for signs of cooling in the labour market, which could bolster the case for a cut sooner rather than later.
Spot prices also rose 1.6%. The yellow metal is now trading about $200 short of record highs earlier this year.
Prices were supported by a weak dollar. Gold tends to have an inverse relationship to the dollar, as it is typically traded in the US currency, so weakness in the greenback makes the precious metal cheaper for overseas buyers.
'Gold, despite its recent losses, has the most potential to gain in the short term if the US dollar continues to decline,' Commonwealth Bank of Australia analyst Vivek Dhar said in a note, reported by Bloomberg.
While the dollar declined, the pound headed higher once again, trading just below the $1.38 mark.
For the year to date, sterling has gained almost 9.8% due to weakness in the greenback. The last time the pair reached this level was late 2021.
The dollar index (DX-Y.NYB) dipped around 0.5%, having suffered its worst start to the year since 1973. Volatility in president Donald Trump's trade policies has led to a pullback in confidence in US assets this year.
The market is now looking to ISM manufacturing and JOLTs data, said analysts at ING in a note.
"On the former, the market will be looking at the trade-off between higher prices paid and lower demand/employment. Any softer prices paid with soft demand/new orders/employment is a dollar negative.
"Equally, higher prices paid and reasonable demand could be a mild dollar positive. And on the JOLTS data, any downside surprise to the 7300k consensus level could hit the dollar on the view that the resilient jobs market is starting to creak after all," they added.
The pound also ticked slightly higher against the euro, following flash inflation estimates from the bloc. Sterling traded around 1.16 euro as data showed June's inflation rate was around the 2% target the European Central Bank looks to when setting interest rates.
Oil prices continued to normalise on Tuesday afternoon, with futures back below levels seen before the escalation of the conflict between Iran and Israel.
Brent crude futures headed 0.7% higher, hitting $67.20 a barrel, while West Texas Intermediate rose 0.7% to $65.56 a barrel.
"The Middle East risk premium has completely disappeared," said David Morrison, senior market analyst at fintech and financial services provider Trade Nation. "It got knocked out of the oil price at the beginning of last week as it became apparent that Iran, Israel and the US were, despite all the airstrikes and missile launches, making efforts to avoid damage to oil and gas infrastructure."
The threat of disruption to the Strait of Hormuz has also receded, with the ceasefire between Israel and Iran apparently on solid footing following a shaky start.
"Market participants remain focused on geopolitical developments, particularly around tariffs," added Morrison. "However, the lack of a clear market-moving catalyst has kept oil in a holding pattern for now, with traders awaiting fresh signals to determine the next move. Many may be content to sit on their hands ahead of the OPEC+ meetings this weekend."
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