Gold recovers some losses ahead of Nonfarm Payrolls

Gold has managed to recover some of its losses as it prepares for the release of nonfarm payrolls data later today. The precious metal had experienced significant selling pressure due to concerns over increasing U.S. interest rates.

In the previous trading session, gold faced a sharp decline, testing the crucial support level of $1,900 per ounce once again. This drop was triggered by stronger-than-expected U.S. private payrolls data for June.

The robust labor market reading heightened worries that the Federal Reserve would maintain an aggressive stance on interest rate hikes to control inflation. Such a scenario is unfavourable for non-yielding assets like gold.

At the time of writing, spot gold (XAU/USD) is trading at $1,916.72 per ounce, while gold futures remain flat at $1,916.00 per ounce.

Rate Hike Jitters

The latest private payrolls data released on Thursday revealed robustness in the labor market, hinting at a similar outcome for the forthcoming nonfarm payrolls data. As a result, market participants swiftly adjusted their expectations, now foreseeing an increased likelihood of additional interest rate hikes by the Federal Reserve later this year. In fact, Fed Fund futures prices indicate that the markets are currently pricing in an overwhelming 92% probability of a 25 basis point hike by the end of July.

This news sparked a flurry of selling as investors assessed the potential impact of a more aggressive monetary policy. The increased probability of interest rate hikes by the Federal Reserve raised concerns about the outlook for gold, leading to some selling pressure.

By raising interest rates, the opportunity cost of holding gold increases, making alternative investments such as the U.S. dollar and U.S. debt more appealing to investors. Consequently, this shift in sentiment weighed on gold prices.

Furthermore, the strength demonstrated by the labor market not only influences market expectations regarding monetary policy but also reflects a certain resilience in the U.S. economy. This has further dented gold’s allure as a safe haven asset.