Last week (June 29th to July 3rd), the international gold market staged a notable rebound, driven by significantly weaker-than-expected non-farm payroll data. Remarks from the new Federal Reserve Chair regarding easing inflation also alleviated market concerns about interest rate hikes.

A Three-Pronged Boost

From a market perspective, the gold market was lifted by three key factors last week, leading to a significant recovery. Firstly, Federal Reserve Chair Waller stated at the European Central Bank Forum in Portugal that both inflation expectations and the risk of inflation heating up had declined in recent weeks. This provided some relief to investors' anxiety regarding the Fed's next policy moves. The previous escalation in the Iran conflict had pushed up energy prices and driven inflation indicators higher, leading to market fears that the Fed might adopt a more hawkish stance. However, international oil prices have fallen significantly since mid-June, corroborating Waller's assessment.

Subsequently, the released June non-farm payroll data showed a sharper-than-expected decline, further dampening market worries about a tightening monetary policy outlook. U.S. non-farm payrolls increased by 57,000 in June, less than half of market expectations. Although the unemployment rate fell, the intensifying contraction in labor supply is a significant underlying concern. Overall, this data somewhat disrupted the previous market expectations for a strengthening U.S. labor market, indicating it remains in a state of weak equilibrium with a gradual cooling trend.

As a rate-sensitive asset, gold had performed weakly under the pressure of prior tightening expectations. Last week's data and Waller's comments prompted the market to reassess its previously overly pessimistic liquidity outlook, contributing to a rebound in gold prices. More importantly, intense volatility in global AI-related assets due to market divergences during the week led some capital to flow back into gold as a risk hedge. The subsequent performance of AI assets may have a relatively inverse impact on gold, warranting ongoing attention.

Key Market Developments

Last week, U.S. June non-farm payrolls were substantially weaker than expected. The U.S. added 57,000 non-farm jobs in June, against a market expectation of 113,000. The weakening in leisure and hospitality employment may be due to the fading "World Cup" effect. In June, private-sector average hourly earnings rose 0.3% month-on-month, meeting expectations. Regarding household survey data, the U.S. unemployment rate fell to 4.2% in June, while the labor force participation rate declined by 0.3 percentage points to 61.5%. The drop in the unemployment rate was primarily due to the decrease in participation.

Federal Reserve Chair Waller indicated that inflation risks have moderated. On July 1st at the European Central Bank Forum in Portugal, Waller stated that both inflation expectations and the risk of inflation heating up had declined in recent weeks. Simultaneously, he emphasized that the Fed would not provide forward guidance on the future interest rate path.

Risk Considerations

Gold has experienced significant volatility recently. Investing in gold funds requires a full understanding of the associated risks, and decisions should be made prudently based on one's own risk tolerance. It is also advisable to continuously monitor global macroeconomic trends, central bank gold purchases, and relevant policy developments.