Gold eases from record levels as investors wait for the next major catalyst

The precious metals market has witnessed a remarkable phenomenon as gold prices take a momentary breather from their recent record-breaking rally. Traders and investors are now poised for the next significant driver that could propel the yellow metal to new heights.

In early morning trading, December gold futures experienced a dip, touching an intraday low of $2,504.40. However, market participants swiftly recognized this as a buying opportunity. By late afternoon, gold had rebounded considerably, with December futures recovering to $2,523.90, representing only a marginal decline of 0.15% or $3.70.

This minor setback in gold prices can be largely attributed to the strength of the US dollar. The dollar index edged up by 0.13% to 101.776, closely mirroring gold's 0.15% decline. It's worth noting that gold had reached an all-time high of $2,560.30 just days earlier, putting the recent pullback into perspective as a mere blip in its overall upward trajectory.

The robust performance this year can be attributed to multiple factors, suggesting that the precious metal may have further room to climb in the coming months. UBS precious metals strategist Joni Teves highlights several key drivers supporting gold's ascent. These include continued strong central bank buying, resilient physical demand, elevated macroeconomic uncertainty, and ongoing geopolitical risks. Teves notes that while higher prices may create some headwinds for gold imports and jewelry demand, underlying interest remains robust.

The Federal Reserve's shifting focus has also played a crucial role in gold's recent performance. Fed Chairman Jerome Powell's recent remarks at Jackson Hole, Wyoming, emphasized a pivot towards prioritizing employment within the central bank's dual mandate. With inflation projected to reach the 2% target next year, attention is now turning to potential weaknesses in the labor market.

This shift in focus has heightened anticipation for the upcoming non-farm payrolls report. Consensus estimates project an addition of 165,000 jobs to the US economy. Particular attention will be paid to the unemployment rate, which reached 4.3% last month. An unexpected rise in unemployment would benefit gold, as it would increase the likelihood of a more aggressive 50 basis point rate cut by the Federal Reserve at its September meeting.

Currently, the CME's FedWatch tool indicates a 100% probability of a rate cut in September, with a 63% chance of a 25-basis point reduction and a 37% likelihood of a more substantial 50-basis point cut.

Wishing you as always good trading,