Gold prices reach new heights amid strengthening labor market conditions

Gold prices have reached an overbought level this week, following a strong rally that has seen the precious metal rise by more than a third this year. The yellow metal is currently trading at around $3,556 per ounce, putting it on track for a third consecutive weekly gain.

This recent surge has driven gold to its highest level since mid-June, with a weekly gain of up to 3%. Silver, another precious metal, has also seen a significant increase, with its price nearly reaching $40.75 per ounce, marking a rise of over 40% this year.

The strong demand for safe-haven assets, driven by uncertainty about the future of the US central bank due to attacks by the Trump administration, has been a major factor in the surge. Gold- and silver-backed ETFs have seen their holdings increase for the seventh consecutive month, reflecting this increased demand.

The upcoming US jobs report is eagerly awaited, and it could provide new impetus for the Fed's monetary policy and further fuel the rally in the precious metals. If the data from the report strengthens signs of a slowing labor market, it could prompt the Fed to consider implementing further monetary easing, which could drive gold prices even higher.

Lower interest rates typically make gold, which yields no interest, more attractive. This is because lower interest rates reduce the opportunity cost of holding gold, making it a more appealing investment.

Analysts at Goldman Sachs have predicted that gold could rise to nearly $5,000 per ounce if Fed independence is compromised and investors shift only a small portion of their bond holdings into gold. This shift could occur if political pressure forces the Fed to keep interest rates low despite high inflation, risking inflationary spirals and undermining trust in financial markets.

Investors expect the US Federal Reserve (the central bank) to be the institution deciding whether its independence is compromised, which could profoundly impact gold prices. Leasing rates for gold, which reflect the cost of borrowing metal for a short period, have risen above 5% this week, far above their normal near-zero level, indicating tight market conditions.

The rise in gold prices has depleted London's available metal stocks, leading to persistent market tightness. Meanwhile, yields on 10-year US Treasury notes have fallen to their lowest level in several months, further boosting the appeal of gold as an investment.

The number of US jobless claims has risen to its highest level since June, potentially strengthening signs of a slowing labor market. If the US jobs report supports this trend, it could further fuel the rally in gold and silver, making these precious metals an attractive investment for many.