ING’s commodities strategists highlight that Gold rallied after weaker US jobs data reduced fears of further Federal Reserve rate hikes. Lower Treasury yields and a softer Dollar improved the appeal of non-yielding assets. They also note continued central bank buying, led by Poland and China, which remains an important source of structural support for the Gold market despite some selling by Russia and Turkey.

Fed outlook and central banks support gold

“In precious metals, gold moved sharply higher yesterday after weaker-than-expected US jobs data eased concerns that the Federal Reserve may need to raise interest rates this year. The softer payrolls report pushed Treasury yields and the US dollar lower, improving the appeal of non-yielding assets such as gold.”

“The move added to gains seen earlier in the week following less-hawkish-than-expected comments from Fed Chair Kevin Warsh. Investors are increasingly reassessing the outlook for US monetary policy. The market will remain focused on incoming economic data to determine whether the recent moderation in labour market conditions continues.”

“This could further reduce pressure on the Fed to tighten policy and remain supportive for gold.”

“Meanwhile, central banks returned as net gold buyers in May, adding around 41 tonnes, according to the World Gold Council. Poland remained the largest buyer, purchasing 18 tonnes and lifting year-to-date acquisitions to 64 tonnes. China extended its buying streak to 20 consecutive months, adding 10 tonnes.”

“Russia, by contrast, was a net seller, reducing its holdings by 6 tonnes in May and taking year-to-date sales to 34 tonnes. Turkey also cut its gold reserves by 3 tonnes, bringing total sales this year to 81 tonnes. Strong central bank buying continues to provide an important source of support for the gold market.”

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