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Metals Stocks: Gold prices top $1,800, end at one-month high as investors focus on U.S. recession odds

Gold futures closed at one-month high on Thursday, buoyed by a pullback in the U.S. dollar and Treasury yields, as investors awaited Friday’s employment report for July to help gauge whether the American economy can avoid recession.

Price Action

Gold for December delivery
GCZ22,
+1.87%

jumped $30.50 or 1.7%, to settle at $1,806.90 per ounce, the highest for the most-active contract since June 30, according to FactSet data. 

Silver for September delivery
SIU22,
+1.41%

rose 32 cents, or 1.6%, closing at $20.12 per ounce. 

Palladium
PAU22,
+3.24%

for September delivery gained $69.60, or 3.4%, to end at $2,077.50 per ounce, while platinum
PLV22,
+4.47%

for October delivery climbed $36.40, or 3.9%, to end at $924.90 per ounce. 

Copper
HGU22,
+0.56%

for September delivery rose 1 cent, ending at $3.48 per pound.

Market Drivers

Gold prices jumped 1.7% on Thursday to top the key $1,800 level, a day after the yellow metal broke a five-day winning streak, as the U.S. dollar and Treasury yields moved lower though data from the U.S. service sector surprised markets Wednesday with momentum and helped clear away some recession fears.

An ISM barometer of business conditions at service-oriented companies such as restaurants, retailers and hotels in July rose to a three-month high of 56.7%, suggesting the economy continues to expand despite growing headwinds. 

“I think the downturn in gold has been overdone,” said George Milling-Stanley, chief gold strategist at State Street Global Advisors, by phone. “We dropped $100 in very short order, as if the U.S. already was in a recession, or on the verge of one, and there was no way of escaping it.”

He also said thinking around a recession has begun to shift, particularly with several Federal Reserve officials signaling that the U.S. economy isn’t in one yet, while also repeating a commitment to cool inflation at a four-decade high.

That’s sparked a rally in most assets that “got whacked a week ago, or so,” Milling-Stanley said. “Gold is in that category.” With it now back around $1,800 an ounce, he said, “I think that’s probably where gold belongs.”

Cleveland Federal Reserve Loretta Mester insisted on Thursday that the U.S. has not fallen into recession, despite two straight quarters of declines in gross domestic product, but still backs higher interest rates until inflation fades.

From a stock-market perspective, the odds of a U.S. economic recession also look less likely, according to a measure of recession probabilities created by strategists at JP Morgan Chase & Co., Bloomberg News reported.

The outlook looks gloomier for Europe, the Bank of England hiked interest rates by 50-basis-point on Thursday, its biggest increase since in nearly 30 years, as warnings emerged that a long U.K. recession may be on its way. 

The yield on the 2-year Treasury note
TMUBMUSD02Y,
3.049%

fell to 3.07% on Thursday, while the 10-year Treasury note yield
TMUBMUSD10Y,
2.680%

retreated to 2.69%.

The focus now remains on Friday’s release of the monthly employment report for July, with scattered reports of layoffs, declining job openings and a softening economy all pointing to a slowdown in hiring.

Read: Hiring slowdown? U.S. seen adding just 258,000 jobs in July

In other metals, copper prices rose, reversing an earlier decline on Thursday, as investors monitored tensions between the U.S. and China over Pelosi’s visit to Taiwan, but also by fears that a slowdown in global economic growth will dampen demand. 

Hear from Ray Dalio at the Best New Ideas in Money Festival on Sept. 21/22 in New York. The hedge-fund pioneer has strong views on where the economy is headed.

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