Gold Plunges Most in Two Months Amid Rise in Jobs, Fueling Speculation on Fed Rate Hikes

Gold Falls Most in Over Two Months as US Jobs Data Fuels Rate Hike Bets

Gold prices plummeted by as much as 3.4% on Friday, marking the largest decline in over two months, as robust US jobs data fueled bets that the Federal Reserve will likely raise interest rates this year. The robust labor market data showed job growth topping all forecasts in May, leading to a surge in bond yields and the dollar. This, in turn, is expected to put pressure on gold prices, which typically decline when interest rates rise.

The recent strength in the labor market keeps the door open for Fed officials to hike rates, particularly with Middle East tensions fueling higher energy prices. Higher rates are often negative for non-yielding bullion, such as gold. According to global head of markets strategy at Brown Brothers Harriman & Co, Elias Haddad, gold faces a double headwind from rising real yields and a firmer dollar. A break below the 200-day moving average, a widely watched measure of long-term momentum, points to the risk of deeper declines.

The latest jobs data has also shifted the expectations of Fed officials, with some, like Cleveland Fed Beth Hammack, a voting member on the Federal Open Market Committee, indicating that it may soon be appropriate to raise rates. Hammack's comments, made in a LinkedIn post after the jobs report, echoed her previous statements made on June 2. Traders now fully price in a quarter-point rate hike by the Fed by December, with a roughly 60% chance of one as soon as October.

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The tech-led rout in stocks also compounded gold's selloff as some investors cut positions to cover losses elsewhere. The US and Iran remain at loggerheads over any potential truce, with the conflict nearing the 100-day mark. 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. This makes central banks more likely to keep interest rates steady or raise them, which is a headwind for precious metals.

Spot gold fell 3.3% to $4,327.95 an ounce as of 2:23 p.m. in New York, while silver dropped 7.5% to $68.37 an ounce. Platinum and palladium also declined. The Bloomberg Dollar Spot Index rose 0.6%. Industrial metals also slid, with copper slumping the most in more than two months on the London Metal Exchange. Investors were concerned that tighter financial conditions will eventually slow economic activity and reduce consumption of raw materials such as copper and aluminum. Copper fell 3% to settle at $13,519.50 a metric ton on the LME, while all other base metals slid on the London bourse, with aluminum down 2% and zinc settling 1.6% lower.