Record price

The metal reached a new high on Friday, August 2, 2024, when the price of the futures contract for December delivery climbed to $2,522. It closed the day a couple of dollars lower, but still at a record high of USD 2 517. Gold has thus gained nearly 28 percent year-on-year, and is up more than 21 percent since the beginning of the year alone. Spot gold closed the same day at $2,443, $25 below its all-time high of July 17, 2024. While the price did not break the previous record, it was up 26 percent year-over-year. The following trading day, however, the price saw a slight correction of nearly 3 percent, with the futures contract trading at $2,446 intraday, while spot gold was trading at $2,403 per ounce.*

The evolution of gold futures prices for December delivery over the last 5 years. (Source: Investing.com)*

Spot gold price development over the last 5 years. (Source: Investing.com) *

Concerns related to the recession

The biggest contributor to Friday's moves is the economic data from the US, especially those from the labour market, which did not turn out as expected. The published figures caused nervousness among investors, who, due to fears of a possible recession in the local market, moved their finances to the safe haven of gold. In July, the non-farm sector managed to create 114,000 jobs, well below estimates that expected 175,000 new jobs, a slowdown from 179,000 in the previous month. Average hourly earnings rose 0.2 percent month-over-month, missing expectations of 0.3 percent. The biggest surprise was the unemployment rate, which climbed to its highest level since October 2021 at 4.3 percent. This is the one associated with the Sahm indicator, which identifies the start of a recession in real time based on a moving average of the unemployment rate. The data added to Thursday's unflattering numbers on jobless claims and from the manufacturing sector, which indicated its cooling.

Is the Fed making the right decisions?

This question was asked by many investors and experts after Friday's data. During the July meeting, held a few days before the data was released, central bank members decided to keep rates on hold for another period, with a possible cut in the near term. During the press conference, Fed Chairman Jerome Powell said that inflation was no longer such an important indicator and warned that a weakening labor market would be a negative sign. He also reiterated what had already come out of his mouth during his June appearance before the Banking Committee, which is the need for proper timing of rate cuts. Despite the central bank's preparedness, the public believes the move comes too late, given the labour market data released.

Geopolitical influences

The investment world has also been spooked by reports of the killing of a Hamas leader and a Hezbollah commander, which could not only extend the fighting in the Middle East to other territories, but also prolong it. The leader of the Palestinian Hamas movement, Ismail Haniyeh, was killed at the end of July in Tehran, where he was attending the inauguration of the newly elected Iranian President. Iran, which supports the group, blamed Israel for the attack and the supreme leader announced harsh punishment in retaliation. Similar rhetoric was adopted by the leader of Lebanon's Hezbollah, as the group's supreme commander Fuad Shukr was killed by Israeli forces in Beirut hours before Haniyeh. At the moment, fighting is taking place only in the border areas. Fearing possible greater reprisals, several Western and Arab countries have called on their populations to leave Lebanon. During geopolitical events such as these, investors usually turn to precious metals as store of value, and as we have seen in practice, this has been no different.

Olivia Lacenova, Chief Analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results