Gold climbs to a seven-week high as weak US labor data boosts prices

Gold prices rose in European trading on Thursday, extending gains for a fourth consecutive session and reaching their highest level in seven weeks as demand for the precious metal strengthened amid growing expectations that the United States and Iran are nearing an agreement over the Strait of Hormuz.

Weak US labor market data also reduced expectations that the Federal Reserve will raise interest rates in September, with investors now awaiting Friday's July nonfarm payrolls report.

The Price

• Gold rose 1.35% to $4,304.20 per ounce, its highest level since June 18, after opening at $4,247.52. It touched an intraday low of $4,245.86.

• Gold settled 4.2% higher on Wednesday, marking its third consecutive daily gain and its biggest one-day advance since February, supported by a weaker US dollar and lower oil prices.

Strait of Hormuz negotiations

• Iran announced that it had reached an agreement with Oman on shipping routes through the Strait of Hormuz, marking an important step toward reopening the strategic waterway.

• A final agreement to end the military escalation remains dependent on broader understandings with the United States.

• US officials, including Secretary of State Marco Rubio, said progress had been made in the negotiations but stressed that key issues, particularly the management of shipping routes and potential transit fees, have yet to be resolved.

• President Donald Trump said an agreement was close while maintaining pressure on Tehran to accept a broader settlement. Iran, meanwhile, continues to deny holding direct negotiations with Washington.

US interest rates

• Payroll processor ADP reported on Wednesday that hiring at US private companies slowed sharply in July, coming in below market expectations.

• Following the report, the CME FedWatch tool showed that the probability of the Federal Reserve leaving interest rates unchanged at its September meeting rose from 43% to 47%, while the probability of a 25-basis-point rate hike fell from 57% to 53%.

• Markets also increased the probability of no change at the December meeting from 17% to 19%, while the likelihood of a 25-basis-point rate hike eased from 83% to 81%.

• Investors are closely monitoring additional US economic data and comments from Federal Reserve officials to reassess expectations for the policy outlook.

• Weekly US initial jobless claims are due later on Thursday, followed by the closely watched July nonfarm payrolls report on Friday.

Gold outlook

We expect gold to remain firmly supported as growing optimism over a potential diplomatic breakthrough in the Middle East reduces inflation concerns and weakens the case for additional interest rate hikes by major central banks.

The precious metal is expected to remain in positive territory after breaking above several important resistance levels and key moving averages, potentially paving the way for a further advance toward the $5,000-per-ounce level.

SPDR Gold Trust

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, increased by 4.85 metric tons on Tuesday, marking a second consecutive daily increase and lifting total holdings to 1,014.15 metric tons, the highest level since June 23.