Gold Continues to Fall, Yields and Oil Strengthen, Fueling Interest Rate Concerns
Gold prices continued to weaken on Monday (June 8) due to market confidence that US monetary policy will remain tight following the release of strong US employment data. Spot gold fell to US$4,308.01/oz, after plunging around 3% last Friday and hitting its lowest level since March 24.
The decline was primarily driven by pressure from rising US government bond yields. The benchmark 10-year Treasury yield rose again after previously hitting a two-week high. This condition makes non-yielding gold less attractive, as the opportunity cost of holding gold increases as yields rise.
Geopolitically, Middle East tensions escalated after Israel announced it was attacking military targets in Iran. At the same time, oil prices rose more than US$3 per barrel. The rise in oil exacerbated inflation concerns, leading the market to assess the likelihood of higher interest rates remaining high for longer.
The US employment data reinforced this narrative. Solid job growth in May indicates a still-strong labor market, giving the central bank more room to prioritize controlling inflation. The market is now pricing in a rate hike before the end of the year, with a probability of about 72% for a December hike, according to CME FedWatch.
Hawkish signals also came from Fed officials. Cleveland Fed President Beth Hammack assessed that the labor market is nearing balance and nearing full employment, while persistently high inflation could force the Fed to act. Other precious metals also weakened: silver fell 2.2% to US$66.33, platinum fell 2.1% to US$1,739.78, and palladium fell 1.5% to US$1,207.50. (asd)*
5 key points:
- Spot gold fell to US$4,308.01/oz, after falling about 3% on Friday.
- US Treasury yields rose, pressuring gold as the opportunity cost of non-yielding assets increased.
- Oil surged (over US$3/barrel), reinforcing inflation concerns.
- A strong US NFP report has made the market increasingly confident that the Fed could remain tight or even raise interest rates.
- The market is pricing in a 72% chance of a December rate hike (CME FedWatch).
Source: Newsmaker.id
