Gold Price Drops as Fed Rate Rise Looms on US Jobs Surprise

GOLD PRICES sank Friday, losing $90 per ounce inside 3 minutes before rallying back above $4400 after new US jobs data said the world's largest economy was stronger in August than analysts forecast, fuelling expectations that the Federal Reserve will raise interest rates this month.

Non-farm payrolls expanded by 162,000 last month, the Bureau of Labor Statistics said, almost 3 times Wall Street's consensus prediction.

Traders in interest-rate futures in response raised the odds of a September rate rise from the Fed to 3-in-5 after pricing it as a 50-50 shot yesterday, and raised their end-2026 consensus back near 4.00% versus the current effective Fed Funds level of 3.63% according to the CME derivatives exchange's FedWatch tool.

Leaping to fresh all-time gold price highs this New Year, gold bullion ignored changes in Fed rate-rise expectations until the start of March, when the US-Israeli war on Iran began, driving oil prices, inflation expectations and interest rates in the bond market higher.

Keeping the unemployment rate at 4.1%, today's non-farm payrolls data revised both June and July's growth higher, adding more than 50,000 jobs to the BLS' initial estimates in total.

Before the jobs data, gold was already $35 per troy ounce below yesterday's 4-session high of $4510 − reached as the politics of central-bank gold reserves hit the headlines. But the price then sank as low as $4367 before rallying back above $4400.

The Dollar rallied on the currency market, US stock market futures slipped, and the price of US Treasury bonds fell, pushing up the interest rate on 10-year debt towards Thursday's peak above 4.80% per annum, the highest since November 2023.

Silver prices also sank on the US jobs data alongside gold, reversing half its 6.6% rebound from Wednesday's 1-week low to dip briefly through $65 per troy ounce.

"With economic activity and the labor market in good shape, they are not a large factor in my determination of the appropriate" Fed Funds rate, said Fed Governor Christopher Waller in a speech on the economic outlook yesterday.

"But they are an important backdrop...[and] inflation is elevated significantly above the FOMC's 2 percent goal [having] exceeded that target for five and a half years.

"If inflation [on August's data] comes in hot, I would consider a rate hike."

Week-to-week, gold priced in Dollars made its steepest fall at 3.0% since mid-June, heading into London's 3pm Friday auction around $4220 per troy ounce.

Analysts in Japan meantime said they doubt this week's rebound in the Yen was due to fresh intervention by the central bank or Ministry of Finance, which joined the US Treasury in spending  well over $100 billion buying JPY to support the currency against the Dollar in late-July.

"The market had long doubted a scenario where rate hikes by the Bank of Japan would sustain the Yen's strength," says economist Soichiro Tateishi of the Japan Research Institute.

But with Japan's government borrowing costs hitting 3-decade highs this week as traders put a near-100% chance on the Bank of Japan raising overnight rates at its meeting this month, "it seems confidence has grown," Tateishi says.