Gold’s rally has been impressive, but is now facing its first true test as US yields and the USD Index are rebounding. ‘Good news is bad news’ and vice-versa for gold prices as it pertains to the July US nonfarm payrolls report.
After a sharp rally over the past week, gold prices have reached their first obstacles, both fundamental and technical. On the fundamental side, a smattering of commentary from typically-dovish Federal Reserve officials have pushed up US Treasury yields, and in turn, the US Dollar . The incoming July US nonfarm payrolls report could be a make-or-break moment in the short-term for gold prices, though.
A strong US jobs report pushes up Fed rate hike odds and thus US Treasury yields, sparking a rebound in US real yields, which would be a negative development for gold prices. On the other hand, a weaker US jobs report could weigh on Fed rate hike odds and US Treasury yields, allowing US real yields to pullback and give gold prices a boost. In a sense, ‘good news is bad news’ and ‘bad news is good news’ for gold prices.
It’s still difficult to read too much into the shifts in gold volatility now that a new fundamental regime is forming in the wake ofat the time this report was written. The 5-day correlation between GVZ and gold prices is