Are the stars finally aligning for precious metals?

Whisper it quietly, but for the first time in months the conditions may finally be lining up in gold's favour. As we've covered extensively in recent weeks, precious metals have spent much of the summer in a holding pattern. Expectations around US interest rates have continued to weigh heavily on prices, while conflict involving Iran and the disruption to shipping through the Strait of Hormuz pushed oil prices higher , and in turn the US dollar, creating another significant headwind.

Yesterday, however, those two themes began moving in the opposite direction at the same time. The result was one of gold and silvers strongest daily performances in recent months. The remainder of this week could now determine whether this proves to be the start of a more sustained move or simply another short-lived rally.

Attention has once again turned to the Strait of Hormuz, where discussions around a potential 60-day agreement could see commercial shipping resume more freely. Talks, led primarily through Oman, appear to be gaining traction, with President Trump confirming negotiations remain positive and speculation growing that further announcements could follow later this week. Should tensions continue to ease, oil prices could come under further pressure. That would remove one of the key factors that has helped support a stronger US dollar throughout the summer, which is a development that would typically be supportive for precious metals.

But while events in the Middle East continue to matter, the dominant driver for gold remains US monetary policy.

Last week's Federal Reserve meeting delivered no change in interest rates, helping gold recover modestly. However, markets have remained cautious with analysts still pricing a September rate rise at around 66%. This week, though, the picture has softened. The latest Job Openings and Labor Turnover Survey (JOLTS) suggested the US labour market is cooling faster than expected. If that trend continues, it could give the Federal Reserve more room to delay any further interest rate increases, which is a backdrop that would typically provide further support for gold. As a result of yesterdays report, we have already seen analysts downgrade the probability for a September interest rate hike to 57%.

However, the week is far from over. Markets now turn to three important pieces of US economic data which could determine whether the rally gathers further momentum or quickly runs out of steam:

  • ADP Employment Change (Wednesday afternoon) – another important indicator of labour market strength.
  • ISM Services PMI (Wednesday afternoon ) – providing a snapshot of activity across the US services sector.
  • Non-Farm Payrolls (Friday) – arguably the week's most influential release and one that could significantly shape expectations ahead of September's Federal Reserve meeting.
If these reports continue to point towards a cooling labour market, the current rally could gather further momentum as expectations of a September rate rise continue to fade. Equally, stronger-than-expected figures would remind investors that the path for precious metals is rarely straightforward and could see recent gains pared back.

For the first time in several months, however, both geopolitics and monetary policy appear to be pointing in the same direction. Whether that alignment lasts beyond this week remains to be seen, but it does leave precious metals in a position they haven't occupied for some time- with fewer headwinds than tailwinds.




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