Gold Set For Worst Month Since November 2016

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Gold prices fell on Wednesday after the U.S. Federal Reserve hinted at a shift to hawkish monetary policy. The yellow metal lingers close to more than a two-month and is on course for its worst monthly decline since November 2016. It is down 7.8% so far in June.

Spot gold is currently trading at $1,758.46 per ounce as of 0734 GMT.

Since the onset of the pandemic, bullion prices depended on quantitative easing and ultra-low interest rates. Thus, it is very vulnerable to changes in monetary policy. The Fed’s shift to hawkish monetary policy also strengthened the dollar and made the gold more expensive for investors using rival currencies.

Another headwind for gold is Moderna’s report that its COVID-19 vaccine is effective against the Delta variant. The positive news pushed the dollar index 0.21% higher. Still another factor to watch out for is an interest rate hike. Fed Governor Christopher Waller said yesterday that the central bank needs to lower its monthly asset purchases to have the option to raise interest rates by late 2023. The crisis stage of the pandemic is over, and the Fed is now in a different phase of economic policy, he explained. St. Louis Fed President James Bullard also expects a rate hike next year.

DailyFX currency strategist Ilya Spivak noted that the Fed’s hawkish stance resulted in price consolidation near the lows. He argued that the main driver of the gold market in the near term is the U.S. nonfarm payrolls data due on Friday. Strong job growth and higher wage inflation would pull the precious metal further down.

On the technical front, ANZ analysts predicted a bearish trend. It is because the bullion failed to recover back above the 100-day moving average. The situation could encourage ETF investors to book profits. Margaret Yang of DailyFX agreed. Gold prices breached the supporting trendline of a bearish pennant that indicates further downside potential, she said.

Meanwhile, the Conference Board reported that U.S. consumer confidence increased from 120.0 in May to 123.7 in June. It is the highest level since February 2020. Consumers’ inflation expectations increased from 6.5% to 6.7%. The labor market differential also rose from 36.9 to 43.5. It is a good sign for the employment report due on Friday.

Gold market participants are monitoring the release of June jobs data to get insights into the recovery of the labor market and its implications for the Fed’s policy. Experts expect an increase of 690,000 jobs, up from 559,000 last month.