Gold Extends Decline as Strong U.S. Jobs Data Lift Odds of September Fed Rate Hike to 60%

Gold extended its decline after stronger-than-expected U.S. employment data lifted expectations for a Federal Reserve interest-rate increase in September.

Bloomberg reported on September 6 that spot gold fell 0.1% to $4,425.37 an ounce as of 8:28 a.m. in Singapore. The metal dropped 1% in the previous session.

U.S. August employment data released on September 4 showed a sharp increase in payrolls, while the unemployment rate remained stable. That bolstered expectations that the Fed could raise rates at its September 15-16 Federal Open Market Committee meeting. Market pricing now implies about a 60% chance of a September rate hike. Because gold does not pay interest, higher rates typically weigh on prices.

Concerns that Middle East tensions could fuel inflation are also reinforcing the case for a rate increase. Iran said it attacked three oil tankers and U.S.-linked vessels in the Strait of Hormuz in retaliation for a U.S. attack on its ships. Brent crude approached $97 a barrel as fears of supply disruptions intensified.

Hebe Chen, a senior analyst at Vantage Markets, said gold is moving back into the center of another macroeconomic storm. Surging oil prices, elevated U.S. Treasury yields and strong jobs data are reviving familiar headwinds for bullion by strengthening the case for another Fed rate increase.

Investors are now watching U.S. producer price index and consumer price index data due later this week. Chen said gold could fall below $4,400 an ounce if the inflation readings come in strong again and reinforce expectations for further tightening. If inflation cools, pressure on gold could ease temporarily, she added.