Gold prices extended losses on Friday after a better than expected jobs report dented safe-haven demand and increased concerns that the Federal Reserve could raise interest rates in the coming months.
A report from the Labor Department that said employers added 255,000 jobs in July had been eagerly anticipated on Wall Street, on Main Street and in Washington, and the much-better-than-expected showing immediately rippled through all three arenas. Stocks surged, experts expressed more confidence that the Federal Reserve was likely to raise interest rates at least once this year, and it was evident that long-stagnant wages for ordinary workers were advancing at a healthy pace.
Positive economic data bolsters the case for the Fed to raise interest rates as early as September. Higher rates tend to hurt gold, since the metal pays its holders nothing and struggles to compete with yield-bearing assets when borrowing costs rise.
“The metals markets are heavily influenced by news bites and psychology. The big jobs number scared the bulls and the requisite reaction was to sell,” Peter Hug, global trading director at Kitco Metals wrote in a Friday note.
The official unemployment rate was flat at a relatively low 4.9%, largely because of a jump in the number of Americans looking for work and finding it.
The employment data painted an unusually strong tableau of growth, with nearly all of the indicators that form the basis of the Labor Department’s monthly jobs report pointing in the right direction.
Speculation over a Fed rate increase in December has also gained traction in the past month. However, many traders doubt that the central bank will raise interest rates before the end of the year, and say that the longer-term catalysts for gold to move higher are still in play given global economic concerns.
“We still have to deal with the fact that while we look good, those around us don’t,” said Ira Epstein, market strategist at the Linn Group, referring to the strength of the U.S. economy relative to the rest of the world.