Gold prices continued to fall in the first trading session of the week as concerns about the possibility of the US Federal Reserve (Fed) maintaining a tough monetary policy increased after the positive US jobs report. In addition, the sharp increase in oil prices also raised new concerns about inflation.
Spot gold prices fell 0.38% to 4,309.89 USD/ounce at 12:02 Vietnam time. Previously, the precious metal had plummeted about 3% in the last session of the week and fell to its lowest level since March 24.
Meanwhile, gold futures for August delivery in the US fell 0.5%, to 4,343.20 USD/ounce.
Mr. Kelvin Wong - senior market analyst at OANDA - believes that the main pressure on gold currently comes from the market increasingly betting on the possibility of the Fed maintaining its "hawkish" stance longer than expected.
The current developments mainly stem from the market re-adjusting expectations for the Fed's interest rates," he said, adding that rising US Treasury bond yields are also putting more pressure on the precious metal.
The yield on 10-year US Treasury bonds continued to rise after hitting a two-week high in the previous session. This increased the opportunity cost of holding gold – an asset that does not yield yields.
Pressure on gold increased even more as oil prices rose more than 3 USD/barrel, raising concerns that inflation could remain at a higher level longer than expected.
Although gold is often seen as an inflation hedging tool, a high interest rate environment is often disadvantageous for the precious metal.
The latest economic data shows that the US economy recorded its third consecutive month of strong job growth. This reinforces the view that the labor market still maintains good resilience, thereby creating more room for the Fed to keep interest rates high to control inflation.
According to CME's FedWatch tool, the market currently assesses the possibility of the Fed raising interest rates before the end of the year to 72%, in which the probability of raising interest rates in December is dominant.
Ms. Beth Hammack – President of the Federal Reserve Bank of Cleveland – said that the latest job data shows that the US labor market is in a relatively balanced state and close to full employment.
According to her, if inflation continues to remain high, the Fed may have to consider raising interest rates in the near future to bring inflation back to the target.
On other precious metals markets, spot silver prices almost went sideways at 67.86 USD/ounce at 12:02 Vietnam time. Platinum prices fell 0.5% to 1,767.42 USD/ounce, while palladium remained stable at 1,225.67 USD/ounce.
