Gold climbs 1.6% after weak data cools rate hike bets

Gold rose 1.6% on Friday, extending its weekly gain. The move followed a batch of weaker-than-expected economic data that led traders to scale back expectations for a Federal Reserve rate hike in September.

The repricing was visible across rate markets. Futures contracts shifted to reflect a lower probability of tightening at the September meeting. The dollar weakened. Real yields dropped, removing a drag that had weighed on bullion in recent weeks.

Friday's data triggered the shift. A series of reports came in below forecasts, reinforcing the view that the economy is slowing enough for the Fed to hold its policy rate steady. Markets now assign a reduced chance to a September hike compared with the elevated odds seen in late July.

For gold, the logic is direct. Lower rate expectations reduce the dollar's appeal and cut the opportunity cost of holding non-yielding assets. The metal had been under pressure through much of July as rate hike bets accumulated. Friday's bounce snapped a weeks-long slide and took prices back above key technical levels.

The next catalyst is Wednesday's CPI report. The inflation data will test the new positioning. A soft number would bolster the case for a pause, traders said. A hot print would revive September rate hike wagers, they added.

Positioning data from the CFTC will give a read on whether speculators built fresh longs ahead of the CPI print or covered shorts. The most recent report showed net positioning near neutral, leaving room for flows in either direction.

Silver's gain tracked gold's, though the more volatile metal also reacted to industrial demand signals. China's mixed economic data and ongoing property-sector weakness have capped silver's upside relative to gold. Still, demand from solar panel manufacturing and electronics continues to support the physical silver market.