Gold prices continued their downward trajectory on Tuesday, extending losses from the previous session, as growing expectations for interest rate hikes by the U.S. Federal Reserve overshadowed a slump in crude oil prices driven by easing Middle East tensions. Front Month Comex Gold for August delivery registered a slight decline of $0.60, or 0.01%, settling at $4,038.30 per troy ounce. This movement contributes to a broader trend, with gold prices down by nearly 11% for the month and heading towards a fourth consecutive monthly decline.
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Fed Rate Hike Bets Strengthen on Robust Labor Data
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The primary catalyst for gold’s continued weakness appears to be the market’s increasing conviction in a more hawkish stance from the U.S. Federal Reserve. This sentiment was bolstered by recent Job Openings and Labor Turnover Survey (JOLTS) data. According to the U.S. Bureau of Labor Statistics, job openings in May unexpectedly increased by 9,000, reaching 7,594,000. This figure surpassed the anticipated 7,296,000 and was also higher than April’s revised 7,585,000, indicating persistent strength in the labor market.
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Further reinforcing this view, the number of job quits saw a slight rise to 3,065,000 in May from an upwardly revised 3,043,000 in April, although it remained below the 3,287,000 recorded a year ago. Robust labor market data typically provides the Federal Reserve with more leeway to consider tightening monetary policy without immediately jeopardizing employment growth. Investors are now keenly awaiting this week’s upcoming U.S. nonfarm payrolls data, which is anticipated to provide further clues on the Fed’s future policy path.
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Currently, market participants are pricing in a 33.70% chance of a quarter-basis-point interest rate hike at the Federal Reserve’s upcoming meeting scheduled for July 28-29. Conversely, the odds of rates being held at their current level stand at 66.30%, according to CME Group’s FedWatch Tool. While the majority still anticipates a pause, the one-third probability of a hike reflects a notable shift in expectations, putting downward pressure on non-yielding assets like gold.
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Geopolitical Easing Fails to Buoy Gold
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Despite a significant de-escalation of geopolitical tensions in the Middle East, which typically would lend support to safe-haven assets such as gold, the precious metal failed to find a floor. Crude oil prices, often a barometer of regional stability, reflected this easing, with WTI Crude for August delivery trading down by $1.04, or 1.47%, at $69.71. This decline was attributed to the resumption of traffic across the Strait of Hormuz and ongoing efforts towards peace negotiations between the U.S. and Iran.
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The recent period saw a brief exchange of attacks over the weekend, testing the Memorandum of Understanding (MoU) signed between the U.S. and Iran on June 17. The MoU had established a 60-day ceasefire and the immediate reopening of the Strait of Hormuz. Incidents included an unknown projectile hitting a Singapore-flagged vessel on Thursday, followed by U.S. Central Command-directed attacks on Iranian targets. A second incident on Friday, involving an unidentified projectile striking a Panama-flagged vessel, drew an immediate U.S. military response, countered by Iran targeting U.S. bases in Kuwait and Bahrain.
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Conflicting Narratives on U.S.-Iran Diplomacy
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The path forward for U.S.-Iran peace negotiations remains clouded by conflicting statements from both sides. U.S. President Donald Trump claimed via his social media platform Truth Social that Iran had requested a meeting and that talks would recommence in Doha, Qatar. White House Press Secretary Karoline Leavitt, in an interview with Fox News, reaffirmed that the meeting followed an Iranian request.
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However, Iran has refuted these claims. Iran’s Tasnim news agency quoted Foreign Ministry Spokesperson Esmaeil Baghaei as stating that no talks are scheduled. Baghaei clarified that an Iranian delegation was indeed visiting Doha, but solely to follow up on the 14-point MoU, prioritizing its technical implementation instead of transitioning to fresh dialogue. Iran’s Fars agency further quoted Baghaei emphasizing that the visit by U.S. representatives to Qatar was “in no way connected” to the Iranian delegation’s trip and stressed that “negotiations on a comprehensive agreement have not yet commenced.” This prevailing uncertainty regarding the direction of the talks has led market participants to hold back from risky moves, contributing to the broader cautious sentiment.
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Ultimately, while geopolitical developments offered some relief in the energy markets, the robust U.S. labor market data and the subsequent strengthening of Federal Reserve rate hike expectations proved to be the dominant force shaping gold’s performance. As investors await further economic indicators, particularly the nonfarm payrolls report, the precious metal remains sensitive to shifts in monetary policy outlook.
