Gold prices dropped by 4.4% on Monday as a strong U.S. employment growth in July. The robust jobs data raised concerns that the Federal Reserve might raise interest rates sooner than expected. It also lifted the dollar to a two-week high and made the yellow metal more expensive for investors using rival currencies. The July hiring data also boosted U.S. 10-year Treasury yields, which increased the opportunity cost of owning the bullion and damped its appeal as a safe-haven asset.
Spot gold is currently trading at $1,746.52 per ounce as of 0735 GMT.
The U.S. Labor Department reported on Friday that nonfarm payrolls increased by 943,000 jobs in July. It was higher than economists’ forecast of 870,000 jobs and was the biggest monthly gain since August 2020. The unemployment rate dropped to 5.4%, and the average hourly earnings increased by 0.4%. The Department also revised May and June data that added 119,000 more jobs to the previous reports. Labor market recovery is one of the main factors considered by the Federal Reserve to dial back pandemic-era fiscal stimulus.
TD Securities analysts noted that gold prices have fallen below the bull-market defining trendline for the first in two years that fueled significant stop-outs. OANDA senior market analyst Jeffrey Halley said the outlook for gold remains bearish since it failed to return to the $1,750 per ounce level. The latest nonfarm payroll data and the potential passage of the U.S. infrastructure this week increase the possibility of Fed tapering before the end of this year.
According to SPI Asset Management managing partner Stephen Innes, the release of U.S. CPI data this week would further test gold. Higher inflation would raise the probability of an interest rate hike earlier than expected. Ilya Spivak of DailyFX sees an immediate resistance level at $1,764.41 per ounce. A break from that level could push gold to retest the inflection region at $1,795-1808.40.
In physical trading, gold futures in India fell 1% to 47,500 rupees per 10 grams. But despite the price corrections, demand has not fully recovered. Indian dealers charged premiums of as much as $1 per ounce as local prices eased. Gold premiums were almost unchanged in other major Asian hubs, including China, Hong Kong, Japan, and Singapore.
In a related development, the holdings of the largest gold-backed exchange-traded fund in the world, SPDR Gold Trust (gld), fell from 1,027.61 tons on Thursday to 1,025.28 tons on Friday.
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