Gold price drops nearly 1% on strong US jobs data

[Ben Graham]

Gold prices fell on Thursday after strong US jobs data took the pressure off the Federal Reserve to lower interest rates at the end of this month, denting the metal’s appeal.

Spot gold dropped 0.9% to $3,326.35 per ounce by 10:45 a.m. ET, erasing most of its gains from the past two sessions. US gold futures also slid 0.7% to $3,336.90 per ounce in New York.

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The precious metal had declined as much as 1.4% earlier in the session, after trading mostly within a narrow range.

The selloff in gold comes after the latest US payroll numbers came in above analyst expectations, and the unemployment rate was lower than forecast.

The dollar, Treasury yields and US stock index futures all rose following the data release, weighing on gold.

Rate cut on hold

“The better-than-expected jobs number means we see a lesser likelihood of a Fed rate cut earlier than currently anticipated,” said David Meger, director of metals trading at High Ridge Futures. “The key is the fact that the idea or possibility of a July rate cut is off the table.”

A Fed rate cut tends to bode well for gold, as the metal yields no interest and thus would become a more appealing asset under a low-interest environment.

“The big question was the unemployment rate,” Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities, told Bloomberg.

“The door for July is over and the Fed will take the summer off. The needle for the Fed to move was employment, and that gives Fed Chair Powell the room for a ‘wait and see approach’.”

According to Reuters, the market is now pricing in 53 basis points of Federal Reserve rate cuts by the end of the year, starting in October, down from around 66 basis points expected prior to the jobs report.

Long-term strength

Despite the pullback, bullion remains one of the best-performing assets this year, rising by more than a quarter and trading at about $170 short of a record set in April. The metal has been bolstered by demand for havens as investors grapple with heightened geopolitical and trade tensions.

On the trade front, an agreement between the US and Vietnam was announced on Wednesday ahead of a July 9 deadline, when the tariffs imposed by President Donald Trump are set to take effect.

Meanwhile, Republicans in the US House of Representatives advanced Trump’s massive tax-cut and spending bill, estimated to potentially add $3.4 trillion to the nation’s debt, toward a final yes-or-no vote.

“As the indebtedness of the US continues to grow, investors might become more concerned about the US dollar, which should benefit gold in the longer term,” said Carsten Menke, an analyst at Julius Baer.

(With files from Bloomberg and Reuters)