Gold prices retreat as strong US jobs data damps rate cut hopes

Stronger-than-expected US jobs data fuels dollar surge, pushes back rate cut hopes.

Berto Tordecilla

Berto Tordecilla

Gold prices sunk back below the $2,050 level on Friday, reversing gains made a day earlier, as investors tempered expectations of interest rate cuts by the Federal Reserve after data showed the US economy added more jobs than expected in January.

Spot gold (XAU/USD) was trading at $2,032 at the time of writing, down 1% on the day. The retreat came after US nonfarm payrolls increased by 353,000 jobs in January, almost double the 180,000 forecast. The data sparked a surge in Treasury yields and the dollar while denting hopes for a near-term Fed rate cut.

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GBP/USD: Sterling sinks as upbeat US jobs data cools bets on Fed cuts

Average hourly earnings also increased more than expected at 0.6% after rising 0.4% in December. The jobs report showed the market had become too optimistic on the timing of Fed rate cuts, said Kevin Gordon, senior investment strategist at Charles Schwab.

While the data underscores a strong US economy that can ward off recession worries, it points to more patience from the Fed in cutting rates, prompting investors to scale back expectations.

Markets are now pricing in around 125 basis points of cuts by the end of 2024 compared to 140 basis points prior to the jobs release.

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