Gold Drops as Strong NFP Makes Case for Fed Rate Hike

Gold futures fell Monday, continuing to trade near a 2 1/2-month low in the wake of upbeat U.S. hiring data.

Strong economic data has boosted expectations for a U.S. interest-rate hike, lifting dollar appeal at the expense of gold demand.

Early Monday, December gold futures  lost $6, or 0.5%, to $1,338.40 an ounce. Gold settled at $1,344.40 an ounce Friday, down 1.7%, and marking the worst day for an actively traded contract since May 24, according to FactSet data.

“Gold traders reduced their positions and took some profit off the table as the odds of the U.S. increasing [interest rates] have become stronger,” said Naeem Aslam, chief market analyst with ThinkMarkets. “However, it is still very vague when that will take place as the upcoming U.S. elections do have massive elements of uncertainty.”

As reported Friday, the U.S. created 255,0000 new jobs in July, outpacing expectations of 185,000, and marking the second-straight healthy jobs reading.

Fed funds futures, a popular vehicle used by traders to bet on the Fed’s policy outlook, showed that the odds for the Fed to raise rates by the September meeting were at 18%, up from 12% before the labor data, according to CME. The odds of a rate increase at the Fed’s December were at 45%.

U.S. stocks were on track to open higher Monday and the dollar largely gained against chief rivals, adding to selling pressure for gold. Higher equities trading tends to dull demand for relatively lower-risk gold. In addition, dollar strength can lower gold’s appeal to overseas buyers.

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza