On Monday, the precious metals market showed confident growth. Gold rose by 0.35%, reaching $4,170, while silver increased by 0.23% to $63. This upward trend is a direct consequence of the macroeconomic backdrop: the US Dollar Index (DXY) settled at a two-week low, and investors are broadly reassessing their expectations regarding the Federal Reserve's next moves.
The key catalyst was the weak US labor market data for June. The economy added only 57,000 jobs — nearly half the consensus forecast of 113,000. Moreover, estimates for April and May were revised downward by 74,000. The unemployment rate, meanwhile, fell to 4.2%. This data fundamentally changed market sentiment.
Rates and Yields: Hawks Retreat
Precious metals do not generate interest income, so their attractiveness is inversely proportional to the cost of money. When the market prices in high rates, holding gold and silver becomes unprofitable. Currently, we are seeing the opposite process: rate expectations are softening.
According to the CME FedWatch tool, the probability of a rate hike in July decreased to 21.9% from 29.9% a week earlier. The probability of maintaining the current rate level rose to 78.1%. A similar trend is evident in September contracts: the combined probability of at least one hike fell from 59.4% to 53%, and the chances of two hikes dropped from 12.6% to 8.7%.
The regulator's rhetoric is also softening. Federal Reserve Chairman Jerome Powell, at the European Central Bank forum in Sintra, reaffirmed a commitment to price stability but noted that inflation risks have diminished. This is a clear signal for the market.
My analysis: We are currently witnessing a classic "risk-on" scenario for precious metals. A weakening dollar and declining rate expectations create an ideal environment for gold and silver to rise. However, the key event of the week will be the release of the Fed meeting minutes and fresh inflation data on July 14. If these reports confirm the trend of a slowing economy, we could see another powerful boost for precious metals. Investors should be prepared for increased volatility.