Gold prices fell on Friday as tensions in the Middle East dampened hopes for a U.S.-Iran peace deal amid rising inflation and interest rate-hike fears.
Shannon Stapleton | Reuters
Gold fell on Friday after a stronger-than-expected U.S. jobs report reinforced expectations that the Federal Reserve will keep interest rates higher for longer amid inflation concerns fuelled by the war in the Middle East.
Spot gold was down 2.2% at $4,375.19 per ounce at 10:05 a.m. EDT, having fallen about 3.6% this week so far. U.S. gold futures for August delivery fell 2.2% to $4,405.10.
Nonfarm payrolls increased by 172,000 jobs in May after rising by an upwardly revised 179,000 in April, the U.S. Labor Department’s Bureau of Labor Statistics said in its report. A Reuters poll had forecast a gain of 85,000 jobs after a previously reported rise of 115,000 in April.
“We’ve got payrolls that came in fairly significantly over what was expected,” said Bart Melek, global head of commodity strategy at TD Securities.
“In light of the fact that we continue to have the war in Iran and very large energy prices and inflationary pressures, it makes it quite unlikely that the Fed is in any mood whatsoever to lower rates. The implication for gold here is that the cost of carry is getting quite high.”
U.S. Treasury yields jumped after the release of the jobs data, increasing the opportunity cost of holding non-yielding bullion. The price of Brent crude oil was on track for a weekly gain.
Bullion has fallen more than 16% since the U.S.-backed war with Iran began in late February. The conflict has led to a surge in oil prices and stoked fears of inflation and higher interest rates. Although gold is seen as an inflation hedge, higher rates tend to weigh on the metal. Markets are currently pricing about a 68% chance of a Fed rate hike in December, according to CME Group’s FedWatch tool, compared to about 50% before the jobs data.
Gold demand was subdued in India this week, while premiums in China eased.
Spot silver fell 5.8% to $69.50 per ounce, platinum dropped 3% to $1,842.70, and palladium slid 1.6% to $1,299.25. All three metals were headed for a weekly loss.