World gold prices continuously decreased amid a positive US jobs report that increased expectations of the US Federal Reserve (Fed) maintaining a tough stance, and may even consider raising interest rates in the near future.
As of 3:45 PM on June 8, spot gold prices fell 0.97%, to 4,286.2 USD/ounce. Meanwhile, silver prices fell deeper, up to 1.25%, to only 66.87 USD/ounce.
Mr. Kelvin Wong - senior market analyst at OANDA - said that the downward trend of gold prices mainly stems from the market starting to value more strongly the possibility of the Fed maintaining a "hawkish" view. In addition, the increase in US government bond yields also puts more pressure on the precious metal.
The yield of 10-year US government bonds continued to rise after rising to a 2-week high in the previous session. High yields increased the opportunity cost of holding gold - an asset that does not yield interest - thereby reducing the attractiveness of the precious metal.
According to Reuters, geopolitical tensions in the Middle East are also strongly impacting market sentiment. Israel said it attacked military targets in western and central Iran on Monday, although US President Donald Trump was said to have asked Israeli Prime Minister Benjamin Netanyahu to restrain further attacks.
This development caused oil prices to increase by more than 4 USD/barrel, raising concerns that inflation may heat up again. In the context of rising inflation, the market has more reason to worry that the Fed will have to maintain high interest rates for longer or consider the possibility of raising interest rates to control prices.
Usually, gold is considered a haven and inflation hedging tool. However, in a high interest rate environment, the precious metal is disadvantaged because it does not bring periodic cash flow like bonds or deposits.
The latest US jobs report shows that the country's economy recorded its third consecutive month of strong job growth. This reinforces the notion that the labor market is regaining momentum after a period of weakness in the previous year, while creating more room for the Fed to maintain a tight monetary policy stance in the context of persistent inflationary pressure.
According to CME Group's FedWatch tool, the market currently values the possibility of the Fed raising interest rates before the end of the year at 72% for the December meeting.
Cleveland Fed Chairman Beth Hammack said that new job data shows that the labor market is generally balanced and close to full employment. However, high inflation may require the Fed to raise interest rates soon to control price pressure.
In the short term, gold prices may still fluctuate strongly according to US bond yields, Fed monetary policy expectations and the tense situation in the Middle East. If the market continues to increase bets on the possibility of the Fed raising interest rates, adjustment pressure on gold may not end soon.
On other precious metals markets, spot silver prices fell 0.5%, to 67.47 USD/ounce. Platinum prices lost 0.6%, to 1,766.70 USD/ounce, while palladium edged up 0.3%, to 1,229 USD/ounce.
