Gold hits seven-week high as weak US jobs data boosts rate cut bets

Gold extended its upward march on Friday, touching a seven-week high as traders piled into the safe-haven metal. The latest trigger: a set of weaker-than-expected US jobs numbers that have all but erased any lingering bets on further rate hikes by the Federal Reserve. Spot gold, tracked as XAU/USD, is now firmly in the bulls' crosshairs, with the $4,380 area emerging as the next target.

The metal's rally comes after a turbulent week that saw prices swing on shifting macro signals. But the latest US payrolls data, released overnight, tilted the scales decisively in gold's favour. A softer labour market typically reduces the urgency for the Fed to keep policy tight, which in turn weighs on the dollar and lifts bullion.

Market participants are now pricing in a more accommodative stance from the central bank, a scenario that historically benefits non-yielding assets like gold. The yellow metal has also been buoyed by a broader risk-on mood, albeit one tempered by geopolitical crosscurrents.

Jobs data dents rate hike bets

The immediate catalyst for Friday's surge was the US jobs report, which showed fewer-than-expected additions to payrolls. While the headline number missed forecasts, it was the underlying wage growth and participation figures that caught the market's attention. Slower wage inflation suggests the labour market is cooling, giving the Fed room to pause or even pivot.

According to analysts tracking the data, the probability of a rate hike in the upcoming Federal Reserve meetings has dropped sharply. This shift has pressured the US dollar index, which slid to a multi-week low, making gold cheaper for holders of other currencies. The inverse relationship between the greenback and bullion played out in textbook fashion.

"The market is now focusing on the possibility of rate cuts, not hikes," noted one commodities strategist. "That's a fundamental change in the narrative, and gold is responding accordingly."

Hormuz hopes and the inflation angle

Adding to gold's tailwinds is a diplomatic development that has eased inflation fears. Reports of progress toward reopening the Strait of Hormuz, a critical chokepoint for global oil shipments, have tempered crude prices. Lower energy costs translate into softer inflation expectations, which further supports the case for a dovish Fed.

Kedia Advisory, in a note, highlighted that the Hormuz reopening hopes have "eased inflation fears and supported sentiment" across commodity markets. For gold, this is a double-edged sword: while lower inflation usually dims gold's appeal as a hedge, the accompanying expectation of looser monetary policy more than compensates.

The net effect has been a steady bid under gold prices, with dips being bought aggressively. Several analysts have flagged that "buy on dips" remains the preferred strategy, at least in the near term.

Best week since January, $5,000 talk

This week's performance has been nothing short of remarkable. Gold is on track for its best weekly gain since January, a move that has reignited long-term bullish calls. Some market commentators, including those at Kitco, have even floated the possibility of gold heading toward $5,000 in the medium term, though such forecasts remain firmly in the speculative camp.

For now, the immediate focus is on the $4,380 resistance level. A decisive break above that could open the doors to a test of record highs, while a failure might invite profit-taking. Technical charts show strong support around the $4,300-$4,320 zone, where recent pullbacks have been met with solid buying interest.

Indian investors, a major force in the global gold market, have also responded. Domestic prices have tracked the international rally, with jewellers reporting healthy demand despite the higher rates. The festive season is still a few months away, but the current momentum suggests appetite remains robust.

What to watch next

The coming sessions will hinge on a few key data points, including US inflation figures and remarks from Federal Reserve officials. Any hint of a policy pivot could accelerate the rally, while a surprise rebound in jobs data might cool the fervour.

Traders will also keep an eye on geopolitical developments, particularly around the Strait of Hormuz. A confirmed reopening could ease inflation further, while a breakdown in talks would likely send oil and gold both higher. For now, the path of least resistance appears to be upward, with $4,380 the immediate hurdle.