The gold price fell by around 0.80% on Friday, extending losses of more than 2% from earlier in the session after a much stronger-than-expected US employment report boosted the case for a Federal Reserve rate hike.
Spot gold live gold price was trading near $4,437 an ounce at the time of writing, down sharply from earlier levels. The selloff came after the US Bureau of Labor Statistics reported that Nonfarm Payrolls rose by 162,000 in August, crushing forecasts of 56,000. July’s figures were also revised upward, from a decline of 23,000 to a gain of 21,000. The unemployment rate held steady at 4.1%.
Strong jobs data raises rate hike probability
The robust jobs data boosted the US dollar, with the US Dollar Index rising 0.13% to 99.13. US Treasury yields also rose initially, with the 10-year yield hitting 4.81% before paring gains to settle at 4.768%. The moves reflect growing speculation that the Fed could raise interest rates at its next meeting.
Money markets now price in a 61% probability of a rate increase at the September Federal Open Market Committee meeting, up from 54% a day earlier, according to Prime Terminal data. The strong labor market gives the Fed room to act if necessary. Last week, Fed Chairman Kevin Warsh described the jobs market as “consistent with full employment” and reiterated that the central bank’s primary focus remains inflation.
Fed Governor Christopher Waller said the central bank is not rushing to raise rates if inflation cools, but that a weak inflation reading next week would favour a rate increase. The next key data points are the Producer Price Index and Consumer Price Index, due next week, along with jobless claims, the monthly budget statement, and the University of Michigan consumer sentiment survey.
Technical outlook: Key levels in focus
Gold’s price action suggests a sideways bias for now, with the 100-day Simple Moving Average at $4,354 providing support on the downside, and the 200-day SMA at $4,534 capping gains. The Relative Strength Index remains bullish but is trending downward toward the 50-neutral level, indicating that sellers are gaining momentum.
For a bearish continuation, gold must drop below the $4,400 mark, followed by the 100-day SMA. Below that, the next target would be the day’s low of $4,282. On the upside, a breakout above $4,450 could open the door to $4,500 and then August’s monthly peak of $4,697.
Key takeaways
- Gold fell about 0.80% on Friday, extending losses after a strong US jobs report.
- Nonfarm Payrolls rose by 162,000 in August, well above the 56,000 forecast.
- Money markets price a 61% chance of a Fed rate hike in September, up from 54% a day ago.
- Key support is at the 100-day SMA near $4,354; resistance is at the 200-day SMA near $4,534.
Common questions
Why does gold fall when interest rate hike expectations rise?
Gold is a yield-less asset, meaning it pays no interest or dividends. When interest rates rise, the opportunity cost of holding gold increases because investors can earn a return from cash or bonds. Higher rates also tend to strengthen the US dollar, which is inversely correlated with the gold price.
What is the US Dollar Index (DXY)?
The US Dollar Index measures the value of the US dollar against a basket of six major currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. It is widely used as a benchmark for the dollar’s strength in global markets.
What are the next key economic data releases for gold traders?
The US economic calendar for the coming week includes the Producer Price Index, the Consumer Price Index, weekly jobless claims, the monthly budget statement, and the University of Michigan consumer sentiment survey. These releases will provide further clues on the inflation outlook and the likelihood of a Fed rate move.
The combination of strong labour market data and persistent inflation concerns has put gold under pressure, but the precious metal’s direction next week will depend heavily on the inflation reports.