- June data revealed a greater-than-expected increase in US private payrolls.
- Data indicated a moderate increase in the number of Americans submitting new claims for jobless benefits.
- The US services sector exhibited stronger-than-expected growth in June.
Gold prices declined after a stronger-than-anticipated US private payrolls report, reaching a nearly one-week low on Thursday. The employment report boosted expectations for additional interest rate hikes by the Federal Reserve, resulting in higher Treasury yields.
Despite concerns of a recession due to rising interest rates, the June data revealed a greater-than-expected increase in US private payrolls, indicating resilience in the labor market.
Gold vs. dollar (Source: Bloomberg)
Following the release of the employment data, the two-year US Treasury note yield rose to its highest level since June 2007, while the dollar recovered from its losses.
David Meger, a director of metals trading at High Ridge Futures, commented that the decline in gold prices reflected the market’s anticipation of a Fed hike at the upcoming July meeting. Meger noted that decreasing continuing jobless claims and better-than-expected ADP private payroll numbers contributed to the rise in yields. This put additional pressure on the gold market.
Recent data also indicated a moderate increase in the number of Americans submitting new claims for unemployment benefits, suggesting a gradual improvement in labor market conditions. Lorie Logan, the President of the Fed Bank of Dallas, expressed the belief that a rate hike was justifiable at the June policy meeting. She affirmed that further rate increases would be necessary to cool down the still robust economy.
According to a survey from the Institute for Supply Management, the US services sector exhibited stronger-than-expected growth in June. This growth was primarily driven by an increase in new orders. This data contributes to the evidence of a resilient economy despite the implementation of tighter monetary policies.
Additionally, the ISM survey revealed that the measure of prices paid by businesses declined to its lowest level in over three years, indicating a potential continuation of cooling inflation. However, officials from the Federal Reserve reiterated their intention to raise interest rates in the future.
Investors currently perceive a nearly 95% probability of a 25-basis-point rate hike in July, following the pause observed last month. Higher interest rates discourage investments in gold, which offers no yield.
The focus now shifts to the upcoming US non-farm payrolls report on Friday as investors seek more clarity regarding the trajectory of Fed rate hikes.