Gold prices fell sharply on Friday after a blockbuster U.S. jobs report for January boosted the dollar and prompted traders to scale back expectations for Federal Reserve interest rate cuts this year.
Jobs Data Sparks Rally in Dollar, Treasury Yields
The U.S. economy added a stunning 517,000 jobs last month, almost triple what economists were expecting, according to Labor Department data. The unemployment rate fell to 3.4%, the lowest since 1969. The exceptionally strong report indicates the labor market remains tight even in the face of high interest rates.
The data sparked a rally in the U.S. dollar as traders increased bets that the Federal Reserve will need to raise interest rates higher than previously expected to cool the economy and tame inflation. Higher rates boost the dollar by making U.S. yields more attractive.
The benchmark 10-year Treasury yield jumped to 3.53% following the jobs report, hitting its highest level since November. Rising Treasury yields are generally seen as a headwind for zero-yielding gold.
| Change on Day | Level |
|---|---|
| +2.5% | 104.74 (DXY Dollar Index) |
| +9 basis points | 3.53% (10-Year Treasury Yield) |
Gold Suffers Worst Day in Two Months
Gold futures plunged 2.6% on Friday to $1,874 an ounce, the worst single-day performance for the precious metal since early December.
The flash crash wiped out gold’s gains for the week, which had seen prices touch two-week highs above $1,960 earlier amid Middle East tensions and hopes for a dovish Fed pivot.
Spot gold tumbled a similar 2.5% on the day to $1,865 per ounce. The sell-off penetrated below key technical support around $1,880, opening the door for further declines according to some analysts.
“Gold’s technical picture looks concerning after the breakdown below support at $1,880,” said Fawad Razaqzada, market analyst at City Index and FOREX.com. “If prices close the week below the $1, 850-60 area, then further bearish follow-through is on the cards.”
Fed Rate Cut Bets Fade After Jobs Shock
Expectations for fewer Fed rate hikes this year have been a key pillar of strength for gold prices. Dovish Fed hopes were ignited in December when core inflation fell more than expected alongside comments from Chairman Jerome Powell signaling a downshift to smaller rate increases.
Bets on rate cuts starting in the second half of 2023 helped drive gold prices up 15% since the end of September. But those wagers faded sharply after the blowout jobs numbers suggested the Fed still has more work to do in cooling the resilient labor market.
Fed funds futures now show just a 28% chance of a rate cut by December, down from 50% odds seen earlier this week. Markets are currently pricing for the Fed’s benchmark rate to peak around 5.15% in July before declining to 4.9% by year-end.
“If the labor market refuses to break, then interest rate expectations will have to keep being revised higher, and that’s what gold continues to struggle with,” said Craig Erlam, senior market analyst at OANDA.
Gold Miners Follow Bullion Lower
Shares of gold mining companies fell in sympathy with bullion prices on Friday, reflecting worries higher rates will weigh on gold by boosting the opportunity cost of holding the metal.
The NYSE Arca Gold Miners Index dropped 5.6% to notch its worst day since mid-November. Major miners Kinross Gold and Barrick Gold plunged nearly 9% each, while Newmont fell over 6%. Junior miners like B2Gold and SSR Mining saw losses of 7%.
The sell-off in miners outpaced the decline in gold itself as the companies tend to act as leveraged plays on bullion. The underperformance also shows investors dumping gold exposure more broadly amid the hawkish signals from the Fed.
However, some analysts say gold miners represent value after substantially underperforming bullion last year. If prices stabilize or rebound, beaten-down miners could attract renewed interest from bargain-hunting investors.
Silver Follows Gold Lower; Platinum Hit Too
Other precious metals joined gold’s slide on Friday as the jobs data similarly dashed hopes for an earlier Fed pivot.
Silver faced intense selling pressure, with futures plunging 5.7% for their worst day since September. The gray metal broke below its 200-day moving average near $22.10 to trade around $21.60, opening the door to further weakness.
“Silver’s bearish technical outlook suggests we may not have seen the worst of the selling just yet,” noted FXTM research analyst Han Tan.
Platinum dropped 4% on the day, penetrating the psychological $1,000 level to its lowest since early January. The auto-catalyst metal has faced pressure from signs of slowing global growth.
Palladium bucked the downward trend among precious metals to finish 0.6% higher on continued worries over tight supply from Russia. But it still posted a weekly loss along with silver and platinum.
| Metal | % Change Friday | Price |
|---|---|---|
| Gold | -2.6% | $1,874/oz |
| Silver | -5.7% | $21.60/oz |
| Platinum | -4% | $993/oz |
| Palladium | +0.6% | $1,696/oz |
UBS Still Forecasts $2,200 Gold This Year
While bullion suffered in the wake of the jobs data, some analysts reiterated an upbeat longer-term outlook due to recession worries and peak inflation likely being behind us.
Swiss bank UBS said Monday it expects gold prices to climb to $2,200 per ounce over the next 12 months as the Fed cuts rates later this year amid a potential economic downturn. UBS also forecast silver outperforming gold in 2024 with a rise to $27.
“Rate-cut expectations could improve more meaningfully during potential U.S. recessions,” UBS analysts wrote in a research note. They put the chance of a recession this year at 55%.
Citi Research also stuck to its call for gold to top $2,000 this quarter and average around $1,900 for the full year despite the jobs-induced whipsaw.
“We think pricing in cuts when the Fed is still hiking seems premature,” Citi said Monday, adding that over the medium term inflation should ease and growth slow, allowing the Fed to reverse course.
So while the latest jobs data clearly dampened the near-term picture, some still say the backdrop of slowing growth, peak inflation and a less hawkish Fed will provide fundamental support. That could set the stage for a rebound in gold prices later this year.
Middle East Tensions, Dollar Strength in Focus
Geopolitical tensions and the U.S. dollar’s next moves will help determine if gold can reclaim its upward momentum in the near term.
Heightened tensions between Israel and Palestinians could buoy safe-haven demand for gold. The conflict escalated over the weekend with Israeli airstrikes killing more than 30 Palestinians in Gaza while militants fired rockets across the border.
Further hostilities or retaliation attacks driving an oil price spike could revive some haven inflows for gold. But the dollar’s reaction will also be key.
The U.S. Dollar Index is up over 3% so far this year and trades around its highest since December 2021. If the greenback extends gains on more Fed hawkishness or equity market turmoil, it could continue weighing on dollar-priced gold regardless of geopolitics.
Most analysts see scope for additional near-term downside if prices remain stuck below $1,880 resistance. But sentiment could shift quickly if recessionary signals mount or the Fed’s tone softens amid financial stability concerns. For now, gold seems caught in a tug-of-war between rates and economic risks.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
