Gold prices continued to tumble, weighed down by stronger-than-expected US nonfarm payrolls data. The yellow metal saw an observable drop, moving from $2,390 to $2,290 per ounce.
The image above shows the how gold is under pressure, as observed on the VT Markets app.
The nonfarm payrolls report for May revealed a substantial addition of 272,000 jobs, surpassing expectations of 175,000. This impressive job growth indicates a still-hot US economy, complicating the rate cut timeline of the Federal Reserve.
Higher job numbers suggest that the economy is growing more than anticipated, which could sway the Fed into maintaining its current interest rates rather than lowering them.
The rationale is straightforward. There is less necessity to stimulate borrowing if businesses and consumers are already thriving.
For a better understanding of how interest rate decisions affect your trading strategy, see also: Interest rate tug-of-war for central banks.
A robust labor market diminishes the likelihood of near-term interest rate cuts, which in turn strengthens the US dollar. A stronger dollar makes dollar-denominated commodities like gold more expensive for holders of other currencies, leading to decreased demand and lower prices.
Gold has always been sensitive to expectations about US interest rates. During the period of rate hikes from late 2015 through 2018, gold prices experienced downward pressure as higher interest rates increased the opportunity cost of holding non-yielding assets like gold.
Conversely, during the economic uncertainty in 2020, when the Fed cut rates to near zero, gold prices soared to record highs.
Related content: How to trade gold
This week, the focus shifts to the US inflation data for May. Additionally, the interest rate decision by the Fed and subsequent commentary from Chairman Powell will be key in shaping market expectations and sentiment.
Gold prices are likely to remain under pressure in the short term as strong economic data reduces the likelihood of imminent rate cuts.
If inflation data remains stable and the Fed adopts a more cautious approach to rate cuts, gold could stabilise but may not see significant upward movement, creating an environment for those who favour scalping as a trading strategy.
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