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Gold pared some gains on Thursday afternoon to less than 1% after earlier gains before 12:30 p.m. GMT.
Gold was pressured as weekly initial jobless claims rose the least in a month, missing expectations. The yellow metal had benefited from a decline in appetite for US bonds, which was reflected in bond funds continuing to correct after recent rapid gains.
In Thursday’s data, initial jobless claims rose by 233,000 last week, below expectations of 250,000.
The pressure on gold came as Thursday’s jobless claims figures eased concerns about the strength of the US labour market, which in turn reduced market bets on an emergency 50 basis point rate cut in September.
The probability of a cut rose by a quarter of a percentage point to 40% from 31% on Wednesday, while the probability of a cut fell by half a percentage point to 59% from 69% on Wednesday according to the CME Fed Watch Tool.
On the other hand, gold got some relief after we saw relatively large outflows from major US bond ETFs after they saw investor money flowing into them as hopes for a rate cut peaked due to the shocking July labour market figures.
The iShares Core U.S. Aggregate Bond Fund (AGG) and the iShares 20+ Year Treasury Bond Fund (TLT) both recorded net outflows of more than $1 billion in total on Wednesday alone.
This was after the many bond ETFs had reached their highest levels this year on hopes that bond prices had passed the bottom they had been stuck in due to higher-for-longer rates, which I think explains gold’s heavy losses that coincided with the decline in bond yields.
Geopolitically, markets are still cautious about how the conflict in the Middle East could develop, anticipating the Iranian response to Israel and the possible counter-response that could ignite a regional war, which keeps gold able to maintain its upward momentum.
While I see nothing on the horizon but more escalation amid the stagnation in negotiating and talk that the arrival of Yahya Sinwar as head of the political bureau of Hamas may make the movement more determined to confront Israel.
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