Gold prices plummeted the most in more than two months after the US jobs report exceeded expectations, increasing forecasts that the US Federal Reserve (Fed) would raise interest rates this year.
The precious metal at one point fell by 3.4% in the last trading session of the week as bond yields and the USD simultaneously increased sharply. The latest data shows that the US economy created 172,000 jobs in May, significantly higher than analysts' expectations, thereby reinforcing the view that the Fed still has room to maintain tight monetary policy to control inflation.
High interest rates are often a disadvantageous factor for gold because precious metals do not bring yields.
Mr. Elias Haddad – Head of Global Market Strategy at Brown Brothers Harriman & Co. believes that gold is under double pressure from rising real yields and a stronger USD.
The fact that gold prices broke through the 200-day moving average - a long-term technical indicator closely monitored by investors - shows that the risk of a deeper decline is still present," he said.
Sharing the same view, Ms. Beth Hammack – Chairman of the Federal Reserve Bank of Cleveland and a member with voting rights at the Federal Open Market Committee (FOMC) said that the Fed may have to consider raising interest rates if current economic trends continue to drag on.
According to her, keeping interest rates unchanged is still a suitable option in the context of uncertain economic prospects. However, if inflationary pressure does not cool down, the Fed may be forced to act in the near future.
After the jobs report, traders have fully assessed the possibility of the Fed raising interest rates by another 25 basis points before the end of the year, and at the same time assessed the probability of raising interest rates in October at around 60%.
Previously, most investors still believed that the Fed's next move was likely to take place in March next year.
In addition to pressure from monetary policy, the sell-off on technology stocks also contributed to a deeper gold decline.
Mr. Phil Streible – Market Strategy Director at Blue Line Futures said that some investors had to sell gold to compensate for losses in other markets, thereby creating more pressure on precious metal prices.
Meanwhile, industrial metals also simultaneously weakened as investors worried that tighter financial conditions would slow down economic growth and reduce raw material demand.
Although gold is under significant pressure in the short term, many experts still believe that the long-term upward trend has not been broken. However, in the context of expectations that interest rates continue to shift to a tougher direction, gold prices may still face strong fluctuations in the near future.
