Bullion declined as much as 3.4% as bond yields and the dollar climbed after the latest US data showed job growth topped all forecasts in May. The strength in the labour market keeps the door open for Fed officials to hike rates as Middle East tensions fuel higher energy prices. Higher rates are typically negative for non-yielding bullion.
“Gold faces a double headwind from rising real yields and a firmer dollar,” said Elias Haddad, global head of markets strategy at Brown Brothers Harriman & Co. A break below the 200-day moving average, a widely watched measure of long-term momentum, points to the risk of deeper declines, according to Haddad.
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Clevenland Fed Beth Hammack, who is considered the most hawkish and a voting member on the Federal Open Market Committee, said in a LinkedIn post after the jobs report that it may soon be appropriate to raise rates as the labour market appears to be in balance.
“For today, it’s reasonable to keep rates steady given the uncertainties around the economic outlook. But if recent trends continue, it may soon be appropriate to act,” she said in her post, largely repeating comments she made June 2.
Traders now fully priced in a quarter-point rate hike by the Fed by December, and saw a roughly 60% chance of one as soon as October. Before the employment data, they’d expected the next move by policymakers to be a hike in March. Fed officials meet June 16-17 under the leadership of new Chairman Kevin Warsh.
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A tech-led rout in stocks also compounded gold’s selloff as some investors cut positions to cover losses elsewhere, according to Phil Streible, chief market strategist at Blue Line Futures.
Meanwhile, the US and Iran have made little progress in talks over an interim peace deal this week, with the sides seeing their worst clashes since an April ceasefire began and fighting continuing in Lebanon. The war, now in its fourth month, has disrupted energy flows via the Strait of Hormuz, driven oil prices higher and raised concerns about global inflation.
That makes central banks more likely to keep interest rates steady or raise them, which is a headwind for precious metals. Gold dropped sharply after the conflict began in late February and has traded in a narrow band in the last few weeks. On Friday, it was 18% below pre-war levels and is close to erasing this year’s gains.
Spot gold fell 3.2%% to $4,330.10 an ounce as of 12:47 p.m. in New York. Silver dropped 7.1% to $68.63 an ounce. Platinum and palladium also declined. The Bloomberg Dollar Spot Index rose 0.6%.
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(Edited by : Jomy Jos Pullokaran)
