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Gold prices experienced a new sharp sell-off at the start of the week’s trading, as the precious metal continued its losses that began after the release of the strong US jobs report last Friday, with the price of an ounce falling below $4,300 for the first time since last March.
Gold fell by about 0.6% on Monday, hitting a low of $4,280 an ounce, bringing its losses in just two sessions to over $150. This decline followed stronger-than-expected US jobs data, indicating continued strength in the US labor market rather than a slowdown.
This data reshaped investor expectations regarding US monetary policy, with bets on interest rate cuts declining significantly, while the likelihood of the Federal Reserve resorting to further monetary tightening before the end of the year increased. Instead of focusing on the timing of the first rate cut, markets began again discussing the possibility of a rate hike if the economic data continues to demonstrate this level of strength.
Gold was also pressured by rising US Treasury yields, with the 10-year yield climbing to its highest level in two weeks. Higher yields are generally seen as a negative factor for gold, as the precious metal does not generate interest or returns for its holders, making bonds and other fixed-income instruments more attractive to investors when their yields rise.
Interest rate futures contracts currently indicate that markets are giving a probability of about 72% that the Federal Reserve will raise interest rates at least once before the end of the year, a significant shift compared to expectations just a few weeks ago that favored a more accommodative monetary policy path.
Meanwhile, geopolitical developments in the Middle East have further complicated the situation. Israel announced strikes targeting military sites in western and central Iran, despite reports of US pressure to contain the escalation and avoid a wider confrontation.
Escalating tensions have driven oil prices up by more than three dollars a barrel, amid fears that any further escalation could disrupt global energy supplies, transportation chains, and international trade. While gold is typically seen as a safe haven and a hedge against inflation, the current situation appears somewhat different.
While rising energy prices may push inflation higher, markets believe this could force the Federal Reserve to keep interest rates elevated for longer or even raise them again. As a result, the downward pressure from rising yields and interest rates has become stronger than the support gold typically receives from safe-haven demand.
While investors await further US economic data in the coming days, the path of interest rates remains the most influential factor in gold’s movements at present. With the US economy continuing to strengthen and bond yields rising, the precious metal appears to be facing one of its toughest periods since the beginning of the year, with selling pressure expected to dominate the market in the near term.
