Gold on cusp of falling below $1,900 after strong US data reaffirms Fed rate-hike bets

Gold prices edged lower on Thursday, nearing a one-week low, driven by a stronger-than-expected private payrolls report that indicated the resilience of the US labor market. This data has further fueled speculations of further rate hikes by the Federal Reserve.

At the time of writing, spot gold recorded a 0.4% decline, settling at $1,903.39 per ounce, while US gold futures slipped by 0.5% to $1,917.10.

The June report on US private payrolls surpassed expectations, underscoring the labor market’s strength despite concerns of a potential recession resulting from higher interest rates.

Preliminary data revealed a moderate increase in the number of Americans filing new claims for unemployment benefits, indicating a gradual improvement in labor market conditions.

Lorie Logan, the President of the Federal Reserve Bank of Dallas, reiterated her belief in the need for a rate increase at the June policy meeting. She emphasised the necessity of further rate hikes to temper the continued strength of the US economy.

According to CME’s Fedwatch tool, investors now perceive a nearly 95% chance of a 25-basis-point rate hike in July, following the Fed’s decision to pause last month. This increase in interest rates tends to discourage investment in gold, which offers no yield.

Market attention remains fairly fixed on the upcoming US non-farm payrolls report, set to be released on Friday, as it will provide further clarity on the Federal Reserve’s future rate hike plans.

From a technical standpoint, things are not looking favourable for gold. A breach below the low of $1,891 seen last week has the potential to unleash a torrent of further downside momentum, targeting the mid $1,850s.