Gold price nears seven-month low on strong US jobs data

The US Fed's higher-for-longer rhetoric on interest rates is also taking the sheen off bullion

Since rising above the $2,000-per-ounce level in early May, gold prices have fallen more than 11 per cent. Randi Sokoloff / The National

Gold hovered near seven-month lows on Wednesday, driven by a strengthening dollar and rising bond yields amid strong US jobs data and the ousting of Kevin McCarthy as speaker of the US House of Representatives.

Spot gold was trading at $1,818.35 at 10.27am on Wednesday.

The price of bullion fell for a seventh consecutive session on Tuesday to its lowest level since March at $1,813.90, as the dollar strengthened on data showing US job openings unexpectedly increased in August.

Markets fell across the board after the number of available jobs in the US rose to 9.61 million from less than 9 million in July, according to the Bureau of Labour Statistics’ Job Openings and Labour Turnover Survey, known as Jolts.

The next data point for the labour market will be the monthly payrolls print on Friday.

“For as long as bond yields are rising, this should keep equities under pressure,” said Fawad Razaqzada, market analyst at City Index and Forex.com.

“With the bond markets continuing to sell off, lifting yields and the dollar, this should further diminish the attractiveness of assets that pay low or zero interest and/or dividends. For this reason, gold could remain undermined, although I wouldn’t rule out the possibility for an oversold bounce from around $1,820 support area.”

Gold prices are affected by the strength of the US dollar, bond yields and political and economic risk, which gives it a safe haven status.

In August 2020, gold hit what is still its record dollar high of $2,067.15 during Covid-19 uncertainty. It spiked again after Russia invaded Ukraine at the start of last year, only to collapse as the early panic eased.

Since rising above the $2,000-per-ounce level in May this year, gold prices have fallen more than 11 per cent, pressured by a sharp increase in benchmark US Treasury yields, which makes non-yielding gold less attractive to investors.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.2 per cent on Tuesday.

Benchmark US 10-year bond yields hit 16-year highs, diminishing demand for non-interest-paying bullion.

Prospects of higher US interest rates have also taken the shine off bullion for investors.

Traders are pricing in a 55 per cent chance that the US Federal Reserve will leave interest rates at the current range of 5.25 per cent to 5.50 per cent at its next meeting on October 31 and November 1, according to the CME’s FedWatch tool.

Federal Reserve governor Michelle Bowman said she remains willing to support another increase in rates if incoming data shows progress on inflation is stalling or proceeding too slowly.

However, US Treasury Secretary Janet Yellen said on Tuesday that she was optimistic about the outlook for the economy, adding that inflation was coming down in the short term and the labour market was “extremely strong”.

Stocks sank and Treasury yields hit new multiyear highs after August jobs data bolstered the case for the Fed to keep interest rates elevated.

The S&P 500 fell 1.4 per cent to a four-month low, while the Nasdaq 100 index dropped 1.8 per cent.

Wall Street’s fear gauge, the CBOE Volatility Index, or VIX, rose above 20 intraday – the highest such reading since May.

Meanwhile, the benchmark US 10-year Treasury yield hit a new 2023 high as it continues to ascend towards the 5 per cent level.

“A cooling labour market was expected to emerge, but the August job openings data showed a large pickup with vacancies. Unless the non-farm payroll report comes in lower than expected, Wall Street will likely start to fully price in at least one more Fed rate hike before the end of the year,” said Edward Moya, senior market analyst for The Americas at Oanda.

“Treasury yields are still rising, so gold’s respect of the $1,830 level could become major support.”

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said that even a hint of an improving US jobs market sent shivers down investors’ spines.

“The financial world was unhappy to see so many job opportunities offered to Americans as the data hinted that the US jobs market could be going back towards tightening, and not towards loosening,” she said.

“That means Americans will keep their jobs, find new ones, ask [for] better pay and keep spending. That spending will keep US growth above average and continue pushing inflation higher, and the Fed will not only keep interest rates higher for longer but eventually be obliged to hike them more.”

However, Ms Ozkardeskaya said that the Jolts data is volatile and one data point is insufficient to point at changing trends.

“We still believe that the US jobs market will continue to loosen,” she added.