Gold prices fell following unexpectedly strong US jobs data for August, which showed non-farm payrolls expanded by 162,000, nearly triple the consensus estimate of 56,000. This robust job growth, coupled with the unemployment rate holding steady at 4.1%, significantly boosted the likelihood of the Federal Reserve raising interest rates at its September 15-16 meeting. Short-term interest rate futures now imply a 65% chance of a rate hike, up from 55% before the jobs report. Independent analyst Tai Wong noted that a "huge headline print" and an "overall strong report" made a September rate hike much more likely, unless a weak CPI report followed.
Spot gold dropped 1.2% to $4,419.09 per ounce and touched an intraday low of $4,364.99 per ounce, putting it on track for a mild weekly decline. US gold futures for December delivery also fell 1.4% to settle at $4,476.60 per ounce. The US dollar strengthened in response to the jobs data, making gold, which is denominated in dollars, more expensive for holders of other currencies. This shift in rate hike expectations was further influenced by Fed officials' hawkish comments, including Chair Warsh's speech at Jackson Hole and Governor Michael Barr's statement that the Fed should be ready to raise rates if inflation persists.
Adding to the downward pressure on gold, geopolitical tensions escalated after Iran reportedly targeted US military bases in Kuwait and the United Arab Emirates. This, along with earlier US strikes on Iranian rocket launchers, pushed crude oil prices above $92 a barrel. Higher energy costs fuel inflation expectations, complicating the Fed's policy decisions and contributing to the sentiment for rate hikes. While some analysts, like Streible, believe that current inflation is due to supply shocks rather than demand and that rate hikes could be a "policy mistake," the market's focus remains on the upcoming US consumer and producer price inflation data for further clues on the Fed's path.
