Market Overview
Gold prices fell below $4,350 per ounce on Tuesday, driven by increased expectations that the Federal Reserve will raise interest rates later this year. This shift in sentiment followed a stronger-than-expected US jobs report, which diminished hopes for imminent rate cuts.
As of 0302 GMT, spot gold was down 0.4% to $4,313.11 an ounce, continuing a downward trend that began on Friday when gold dropped approximately 3%, marking its lowest price since March 24. August gold futures also saw a decline of 0.7%, settling at $4,336.30.
Recent Trends
Gold has experienced a significant decline of 8.64% over the past month, although it remains up 30.09% year-to-date. The rise in the 10-year Treasury yield to a two-week high has increased the opportunity cost of holding non-yielding assets like gold.
Employment Data Impact
The US employment report released on Friday indicated that the economy added 172,000 jobs in May, with the unemployment rate holding steady at 4.3%. This data has led traders to adjust their expectations, now pricing in a 43% probability of a quarter-point rate hike in December, a significant increase from about 14% a month prior. Some estimates suggest that the likelihood of a December hike could be as high as 72%.
Geopolitical Context
Gold is traditionally viewed as a safe-haven asset during periods of geopolitical uncertainty. However, it does not yield interest, making it less appealing when interest rates are on the rise. Current tensions in the Middle East, particularly between Iran and Israel, add complexity to the market. Although Iran has paused its strikes against Israel, it has warned of potential resumption of hostilities if Israel continues its attacks on Lebanon.
Future Outlook
TD Securities has revised its gold price forecasts for the second half of 2026, projecting average prices of $4,550 in Q3 and $4,700 in Q4, which are down 3% and 10% respectively from previous estimates. The bank has cautioned that gold prices could test the $4,000 mark if oil prices remain above $100 per barrel.
Traders are advised to monitor upcoming US Consumer Price Index (CPI) data on Wednesday and Producer Price Index (PPI) data on Thursday for further insights into the Fed's potential rate path. Key factors to watch include:
- CPI and PPI inflation data to gauge Fed rate decisions
- Developments in the Middle East, especially Iran-Israel tensions and oil price fluctuations
- Gold's ability to reclaim the $4,350 level for stabilization, or if it will trend down towards support levels at $4,200 and $4,000