Gold sees biggest fall in 2 months: What's the reason?
What's the story
Gold prices have witnessed their biggest fall in over two months, falling as much as 3.4%. The decline comes after strong US jobs data strengthened expectations that the Federal Reserve may raise interest rates this year. The move is seen as a potential headwind for the precious metal, which usually performs poorly in high-interest-rate environments.
Response
Strong US jobs data raises interest rate concerns
The latest US data revealed that job growth in May exceeded all forecasts. This has led to an increase in bond yields and the dollar, further fueling expectations of a Federal Reserve interest rate hike. The strong labor market leaves room for Fed officials to consider raising rates amid rising energy prices due to tensions in the Middle East.
Market analysis
Analysts warn of potential deeper declines for gold
Elias Haddad, Global Head of Markets Strategy at Brown Brothers Harriman & Co, said gold is facing a "double headwind from rising real yields and a firmer dollar." He also noted that a break below the 200-day moving average could indicate deeper declines for the precious metal. This comes as traders have fully priced in a quarter-point rate hike by December and see a 60% chance of one as soon as October.
Market impact
Geopolitical tensions and stock market rout add to gold's woes
A tech-led stock market rout has also contributed to gold's sell-off, as some investors are cutting positions to cover losses elsewhere. Meanwhile, ongoing geopolitical tensions between the US and Iran over a potential truce have further complicated matters for the precious metal. The fourth month of war has disrupted energy flows via the Strait of Hormuz, driven oil prices higher, and raised concerns about global inflation.
Price drop
Gold and silver prices witness sharp decline
Gold prices fell 3.3% to $4,327.95 per ounce as of 2:23pm yesterday in New York. Silver also witnessed a sharp decline, dropping 7.5% to $68.37 per ounce. Other precious metals like platinum and palladium also saw a fall in their prices amid these market fluctuations.