Gold weakens after US employment data recalibrates interest-rate expectations

Gold price resumed its short-term bearish tone at the end of last week after the US NFP data showed a higher-than-forecast 272K rise in the number of new workers joining the economy in May, beating economists’ estimates of 185K and rising from a downwardly revised 165K in April. 

Not only did payrolls beat expectations, but the data also showed Average Hourly Earnings rising by 4.1% YoY in May, more than the 3.9% forecast and the upwardly revised 4.0% in April. This suggests workers are earning more, which could push up spending and, in turn, inflation. 

The market’s expectations that the Fed will cut interest rates in September fell to just over 50% after the release of the NFP from 67% previously, according to the CME FedWatch tool, which bases its estimates on 30-day US Fed Fund Futures pricing data. 

That said, Gold price is supported by the different outlook for global interest-rate expectations, which remain depressed. The Bank of Canada (BoC) cut its overnight rate by 0.25% to 4.75% last week, as did the European Central Bank (ECB). The release of lower inflation data in Switzerland has prompted speculation the Swiss National Bank (SNB) could also cut interest rates at its June 20 meeting following an initial cut in March. 

Gold traders will now be looking for further cues on price direction at the Federal Reserve June meeting, which concludes on Wednesday, as well as the US Consumer Price Index (CPI) data for May out earlier on the same day.