Gold Prices Rise 1st Week in 5 as Markets Re-Think Fed Rate Rise

GOLD and SILVER continued to rally from 7-month lows on Friday, trading higher for the first week in 5 and 8 respectively as betting that the US Federal Reserve will soon start raising interest rates eased further following yesterday's weak US jobs data.

"Markets have embraced the view that [new Fed chair Kevin] Warsh equals a hawkish shift in the Fed's reaction function," says economist and FX strategist Robin Brooks at Washington think-tank the Brookings Institute.

"I disagree with pretty much all of this. The labor market doesn't feel strong...Underlying inflation looks remarkably well behaved."

"Resilience in the US jobs market is not driving price pressures," agrees Swiss bank and London bullion market maker UBS, calling the market consensus for Fed rate hikes "too aggressive [because] inflation should moderate as the year progresses."

Silver today jumped to touch its highest since Tuesday last week at $62.88 per troy ounce, while gold came within $5 of $4200, erasing the past 2 weeks' losses.

Betting that the Federal Reserve won't raise its key interest rate through September meanwhile edged higher again, pricing the odds of "no change" at 46%, the highest since mid-June, eve of Warsh's first Fed meeting as chairman.

"There's no reason the Fed should hike," says Brooks. "Chair Warsh yesterday said as much at the [European Central Bank's annual] Sintra conference."

"The Fed's new task forces could [also] delay policy adjustments," adds UBS, pointing to the 5 reviews of data and operations Warsh announced at the Fed's June meeting, including a re-think of the inflation measure targeted by the US central bank, currently the core PCE index rather than the headline Consumer Price Index, with the new Fed chair himself preferring the 'trimmed mean' PCE gauge.

With gold and silver prices rallying further on Friday as US markets stayed shut for the 4th July holidays marking 250 years since the Declaration of Independence, global equity bourses also rose again, reversing most of yesterday's fresh plunge in Asian chipmaker and other AI-related shares.

Among Asia's gold consumers meantime, "The lean demand season [for gold in India] has now started, as there are no major festivals soon," Reuters quotes a bullion dealer in Mumbai, where gold this week traded at a discount to London quotes of up to $7 per troy ounce after accounting for the subcontinent's record-high import duty and sales tax.

Gold prices in No.1 consumer market China extended their run above London quotes however, suggesting solid demand versus local supply with a Shanghai premium averaging almost $10 per troy ounce, more than 5 times last week's 3-month low.