Prices of gold and the corresponding SPDR Gold Trust (ETF) (NYSEARCA:GLD) slid futher in European trade on Monday after pulling back earlier in the day during Asian hours. Bullish U.S. labor data may be the main factor rattling gold.
U.S. employers added 255,000 nonfarm jobs in July, higher than the 179,000 jobs that economists were expecting for the quarter. The robust job market witnessed last month came on the back of solid jobs growth in June. U.S. employers created 292,000 new jobs in June. Earlier estimates showed that 287,000 jobs were added in June, but the figure was later revised up to 292,000, indicating a much stronger growth in the jobs market.
Gold futures for December delivery hit a session low of $1,336.10 a troy ounce in early morning trading in Europe. Earlier in the day, the yellow metal slid to $1,341.55 a troy ounce in Asian hours. Gold sank 1.7% on Friday. Spot gold is now just above $1,330.
Upbeat economic data
The strong U.S. jobs growth in July signals the possibility of an accelerated path to interest rate hikes by the Federal Reserve, though a scenario like this has happened before with the Fed failing to follow through. When the Fed policy officials met last month, they signaled that they could move rates up sooner than later if they were satisfied by the quality of economic growth as indicated by labor data.
Therefore, the dollar strengthened on the strong jobs data as hope increased among investors that the Fed could raise rates before the end of this year. But a stronger dollar hurts gold trading as it makes the yellow metal more expensive for traders holding currencies other than the greenback.
Interest in yield-bearing assets
The growing hope of a possible rate increase this year is also shifting investor attention to equities and other typically riskier but yield-bearing investments. In that case, the appeal of gold as a safe-haven diminishes. But gold prices are still up nearly 26% so far in 2016. Investor appetite for gold soared in the first quarter, pushing the price of the precious metal to a 30-year high amid mixed economic data.
The Brexit uncertainty also lifted gold prices. But a wave of easing by central banks and data showing that U.S. economic growth is gaining pace have helped drive interest in stocks at the expense of gold and other safe-haven assets.