Gold futures tumbled last week, pressured by rising global interest rates. The selling pressure was strong enough to take out the main bottom at $1217.80 from the week-ending May 12. The downside momentum at the close has put the market in a position to challenge the next main bottom at $1201.40 from the week-ending March 10.
August Comex Gold settled the week at $1209.70, down $32.60 or -2.62%.
The selling pressure started early in the week as investors continued to respond to the hawkish comments from several central bankers, strongly suggesting that the days of lower interest rates were numbered. The Fed has already committed to a tight monetary policy but it looks like they will be joined in the near future by the European Central Bank, the Bank of Canada and the Bank of England.
Dollar-denominated gold typically loses value when the Greenback and U.S. Treasury interest rates rise since the metal does not bear interest. Last week, rising U.S. Treasury yields helped boost the U.S. Dollar, exerting the most pressure on gold.
Gold did steady a little after the release of the Fed minutes and a weaker than expected private sector jobs report, but any bullishness was wiped out by Friday’s robust U.S. Non-Farm Payrolls report.
Gold stabilized somewhat after the release of the minutes from the June monetary policy minutes because it showed that the Fed is worried about soft inflation readings. However, it wasn’t enough to sustain a rally because other comments suggested that the muted inflation readings were temporary. Furthermore, the Fed also announced that it was preparing to begin trimming it massive $4.5 trillion portfolio although it did not give specific details of the event.
Gold prices dropped sharply on Friday to their lowest level in nearly five months on the back of stronger-than-expected employment data. According to the Labor Department, the U.S. economy added 222,000 jobs in June. The unemployment rate inched higher from 4.3 percent to 4.4 percent. Hourly wages grew 0.2, slower than the 0.3% forecast.
The downside momentum on the close on Friday suggests the market is in the hands of strong sellers. Selling pressure could continue next week as traders digest the jobs report over the week-end and the major players return to the market after the U.S. holiday-shortened week.
The market will be particularly reactive to the Bank of Canada’s (BOC) interest rate decision on Wednesday, Fed Chair Janet Yellen’s testimony on monetary policy on Thursday and the U.S. CPI and Retail Sales reports on Friday.
Look for volatility especially on Wednesday with the release of the BOC interest rate decision. If the central bank raises rates then gold prices could plunge. If the BOC leaves rates unchanged then we could see a strong short-covering rally.