Gold prices slump as strong jobs data firms dollar, boosts Fed rate hike bets

Gold prices sank on Friday and were on track for a weekly decline, after a strong U.S. employment report bolstered wagers that the Federal Reserve could lift interest rates later this year. The U.S. dollar strengthened in reaction to the jobs data, while Treasury yields soared as traders dumped bonds. 

At 16:50 ET (20:50 GMT), spot gold was down 3.3% to $4,325.96/oz, while gold futures dropped 3.4% to $4,352.57/oz.

May job growth blows past expectations, boosts rate hike odds

Precious metal market participants were focused on the May nonfarm payrolls report on Friday for cues on monetary policy. According to the Bureau of Labor Statistics, the U.S. added 172k jobs last month, easily blowing past expectations of a rise of 85k. The unemployment rate remained unchanged at 4.3%. Total nonfarm payroll growth was also revised higher for March and April by a combined 93k.

The data, coming on the heels of other positive indicators on the labor market this week, suggests that the maximum employment part of the Fed’s dual mandate is under control and that the inflationary side is a bigger concern. With oil prices still elevated and price pressures increasing, the strong jobs report also likely rules out interest rate cuts for the time being. In fact, traders on Friday increased their odds for rate hikes this year after the data.

The rise in rate hike bets also made government debt less attractive, with investors dumping bonds which boosted Treasury yields. According to the CME FedWatch tool, a quarter-point rate hike is now being fully priced in by the end of the year. Higher rate environments tend to weigh on non-yieldings assets such as gold.

"Friday’s jobs report was much stronger-than-expected and shows that the labor market is turning a corner after a rough past 12 months driven by fears of AI and uncertainty over geopolitics and tariffs. The revival of the labor market makes the Federal Reserve’s job easier and allows it to keep rates steady in the meantime as it assesses the volatile inflation situation," Glen Smith, chief investment officer at GDS Wealth Management, said.

The labor data comes at a time when the Fed has seen a chair transition to Kevin Warsh from Jerome Powell. President Donald Trump has repeatedly called for rate cuts since taking office for his second term.

"Our baseline FOMC view is unchanged on the release. As we have been highlighting for some time, we see the next move as a hike with our baseline timing being in 1Q27. Risks to this have become skewed to an earlier hiking with markets now discounting a hike in 4Q26. FOMC rhetoric is likely to continue to shift away from a cutting bias and towards a hiking bias in coming weeks," David Doyle, head of economics at Macquarie, said.

The rise in rate hike bets and sell-off in bonds also pressured U.S. equities on Friday. Trump later at a press gaggle praised the jobs numbers.

"I’m going to let (Warsh) make that decision. I’d like to see lower interest rates," the president said, when asked whether the Fed should cut rates at its next meeting.

Hezbollah’s rejection of Israel-Lebanon ceasefire elevates Middle East tensions

Turning to the Iran war, hopes for progress in diplomatic efforts to end the fighting took a hit after Hezbollah dismissed a ceasefire between Israel and Lebanon. Iran, which is aligned with Hezbollah militants, has made a cessation in fighting in Lebanon a key demand in peace negotiations.

The U.S. and Israel launched a joint assault on Iran in late February that has since spread to include other areas in the region, including Lebanon.

In a statement, Hezbollah’s leader described the U.S.-brokered agreement between Israel and Lebanon earlier this week as "absurd, humiliating, and insulting." According to the Associated Press, the announcement came as Israeli attacks killed at least four people. Lebanese troops moved into areas of southern Lebanon on Thursday which have been the scene of intense fighting for months, the AP said, citing state media.

The ceasefire had been seen as a positive step towards a broader peace deal between the U.S. and Iran. Meanwhile, the critical Strait of Hormuz continues to be all but shut, leading to the biggest oil supply disruption in history and surging oil prices, which in turn have led to an inflationary shock around the world. Benchmark crude contracts were lower on Friday, but were headed for a weekly gain.