Gold prices hovered around $4,400 an ounce on Monday as stronger US employment data increased expectations for a Federal Reserve interest rate hike later this month. Rising oil prices also added to inflation concerns, creating another challenge for the precious metal.
Spot gold was down about 0.6% at $4,403.69 an ounce, while gold futures fell 0.6% to $4,448.85. Gold had already dropped 1% on Friday after the stronger than expected US jobs report shifted expectations around the Fed’s next policy move.
Strong US payrolls put pressure on gold
US employers added 162,000 jobs in August, significantly beating expectations, while the unemployment rate remained at 4.1%. The stronger labor market has made investors more confident that the Federal Reserve could raise interest rates at its September 15 to 16 meeting.
Markets are now pricing roughly a 60% chance of a September rate hike, up from around 50% before the jobs report. Reuters reported that the probability had climbed to about 60% following the payroll data.
Higher interest rates can weigh on gold because the metal does not generate interest or dividends. When yields rise, investors have more incentive to hold interest generating assets instead. A stronger US dollar can also hurt gold because bullion is priced in dollars and becomes more expensive for buyers using other currencies.
The dollar gained after the jobs report, adding another layer of pressure on gold. Investors are now waiting for fresh inflation data to determine whether the recent shift toward a more hawkish Fed outlook will continue.
Oil prices add to inflation concerns
Rising oil prices are complicating the outlook for both gold and the Federal Reserve. Brent crude climbed toward $97 a barrel on Monday as tensions around the Strait of Hormuz raised concerns about disruptions to global energy supplies. Reuters reported that Brent reached about $97.17 a barrel, while US crude approached $92.27.
Iran said it had targeted three oil tankers in the Strait of Hormuz, along with other vessels linked to the United States, following attacks on ships over the weekend. The escalation has raised concerns that a disruption to one of the world’s most important oil routes could push energy prices even higher.
Higher energy costs can feed directly into inflation. That could make it harder for the Fed to ease monetary policy, especially if upcoming inflation figures show that price pressures remain persistent.
Gold has already suffered some technical damage after falling below its 200 day moving average near $4,526 last week. The metal had previously rebounded from levels close to $4,000 in July, but its recent decline has left traders watching whether the $4,400 area can hold.
US inflation data becomes the next gold catalyst
The next major test for gold will come from US inflation data later this week. Producer price figures are due Thursday, followed by consumer price data on Friday.
A hotter than expected inflation reading could strengthen expectations for a September rate hike and put further pressure on gold. A softer reading could have the opposite effect by giving traders more reason to scale back their expectations for tighter Fed policy.
For now, gold remains caught between two competing forces. Strong US economic data is pushing investors toward higher interest rates, while geopolitical tensions and elevated oil prices are increasing demand for protection against inflation and market risk. The upcoming inflation reports could determine which force takes control of the gold market next.