Gold Prices Plummet Most in Two Months as Strong Jobs Report Fosters Expectations of Federal Rate Hikes

Gold Prices Plummet as Robust US Jobs Data Fuels Rate Hike Bets

Gold prices experienced a decline of as much as 3.4% in the most significant drop in over two months, fueled by expectations of a potential interest rate hike by the Federal Reserve. The robust US jobs data released in May has strengthened the case for the Fed to raise interest rates, a move that typically has a negative impact on the precious metal.

The latest US employment data showed job growth exceeding forecasts, with the labor market appearing to be in balance. This has led to a rise in bond yields and the dollar, further contributing to the decline in gold prices. The strength of the labor market has kept the door open for Fed officials to hike rates, particularly with Middle East tensions driving up energy prices.

A break below the 200-day moving average, a widely watched measure of long-term momentum, points to the risk of deeper declines. Federal Reserve officials, including Beth Hammack, a voting member on the Federal Open Market Committee, have hinted at the possibility of raising rates. Hammack stated in a LinkedIn post after the jobs report that it may soon be appropriate to raise rates as the labor market appears to be in balance.

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Markets have fully priced in a quarter-point rate hike by the Fed by December, with a roughly 60% chance of one as soon as October. Before the employment data, traders had expected the next move by policymakers to be a hike in March. The Fed meets on June 16-17 under the leadership of new Chairman Kevin Warsh.

A tech-led rout in stocks also contributed to the decline in gold prices, as some investors cut positions to cover losses elsewhere. The US and Iran remain at loggerheads over any potential truce heading into the weekend, with the conflict nearing the 100-day mark and Tehran saying that it and Oman have sovereignty over the Strait of Hormuz.

Spot gold fell 3.3% to $4,327.95 an ounce as of 2:23 p.m. in New York. Silver dropped 7.5% to $68.37 an ounce. 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.

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Copper fell 3% to settle at $13,519.50 a metric ton on the LME. All other base metals slid on the London bourse, with aluminum down 2% and zinc settling 1.6% lower.