Gold edged up to fresh highs on Tuesday as investors continued to bet on a September rate cut from the Federal Reserve and the dollar stayed weak.
Gold (GC=F) futures touched an intraday high north of $3,700 per troy ounce before paring gains, while spot prices climbed above $3,650.
The moves came as revised US jobs data highlighted a labor market slowdown, with investors holding firm on a 25 basis point cut while awaiting this week’s inflation report.
“If inflation comes in ‘softer,’ the easing narrative will be reinforced,” said Linh Tran, market analyst at XS.com on Tuesday, adding that lower rates will further weaken the dollar, helping support gold prices.
The US dollar index (DX.Y.NYB) has declined more than 9% year-to-date, hovering below 98 on Tuesday.
“Conversely, ‘hot’ data could push yields and the USD higher, potentially triggering a technical correction in gold before the primary trend is reassessed,” Tran added.
Gold has been on a tear this year, up more than 40%, far outperforming the broader S&P 500 (^GSPC) index, up 10% year to date.
Over the past month, the precious metal has rallied 7%, prompting concerns that gold may be overextended in the short run.
Dilin Wu, research strategist at Pepperstone, noted gold “is in overbought territory,” with traders likely more “cautious” when adding new long positions.
“This also suggests that there may be short-term pullback or consolidation as the market gathers strength,” he added.
Central banks have been adding gold to their holdings for 14 straight quarters, dating back to 2020, with China’s latest August purchase its tenth straight monthly increase in reserves.
For the first time since 1996, foreign central bank gold reserves now exceed US Treasurys, according to Bloomberg data compiled by Crescat Capital macro strategist Tavi Costa.
Goldman Sachs analysts, meanwhile, have called gold their “highest-conviction” commodities trade, arguing a bull case in which prices could climb toward $5,000 by the end of next year.
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