(Bloomberg) -- Gold wavered after its biggest one-day surge in three weeks, with the latest U.S. data easing some concerns about a hard landing for the world’s biggest economy and helping support a broader rally.
Bullion for immediate delivery closed 1.9 per cent higher Thursday after shedding almost 3 per cent during a five-day losing streak. The rebound was aided by Labor Department data that showed applications for unemployment benefits falling by the most in nearly a year, boosting optimism that the Federal Reserve may be able to thread the needle in easing monetary policy starting next month while avoiding a recession.
This week, global markets saw a return of volatility due to concerns that the US may face a recession, along with tighter policy from the Bank of Japan that ignited a selloff in equities and sharp moves in currencies. While bullion usually acts as a haven, it can also face short-term weakness during periods of market upheaval.
Thursday’s gains put bullion within touching distance of the record it reached last month. Friday’s price was little changed.
Swap traders have now pared bets on rate cuts for the year after pricing aggressive cuts earlier this week. A large majority of economists surveyed by Bloomberg see only a quarter-point decrease coming in September — a finding that’s at odds with calls from some large Wall Street banks for a jumbo cut.
Bullion’s next test will come with inflation data. Investors will look for readings of producer and consumer price indexes on Tuesday and Wednesday to confirm that inflation is still ebbing, supporting the case for Fed rate cuts as soon as next month.
The precious metal has risen about 18 per cent this year, largely on expectations the US central bank would soon deliver rate cuts. Gold is typically boosted by monetary easing because it doesn’t pay interest.
Other factors supporting gold’s upward trend include increased purchases from central banks and Chinese consumers, along with haven buying due to conflicts in the Middle East and Ukraine.
“Heightened volatility, elevated geopolitical risks, recession worries, and expected rate cuts have gotten gold to current levels and eaten into our conviction around urging caution” in buying bullion, RBC Capital Markets analysts, including Helima Croft, wrote in a note. “Environments like this can be a perfect storm for gold.”
Still, a headwind emerged for the precious metal after data showed gold holdings in exchange-traded funds slumped by 0.7 per cent on Thursday, the biggest one-day decline since October.
Spot gold traded at $2,430.31 an ounce as of 10:16 a.m. in New York, on track for a 0.5 per cent weekly decline. The Bloomberg Dollar Spot Index declined 0.2 per cent. Silver, platinum and palladium all fell.
--With assistance from William Clowes and Yvonne Yue Li.
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