Gold prices have dropped below $4,291 per ounce, marking their weakest level of the year. This decline followed significantly stronger-than-expected US labor market data for May. A robust employment report has amplified expectations that interest rates in the United States will remain higher for longer, pushing bond yields to a two-week high and lending further support to the US dollar.
US jobs surprise hits market sentiment
In May, nonfarm payrolls in the US increased by 172,000, well above market expectations of 85,000. The previous month’s figure was also revised upward from 115,000 to 179,000. According to the US Bureau of Labor Statistics, the unemployment rate stayed at 4.3 percent. This marked the third consecutive month that jobs growth exceeded expectations.
Stronger-than-expected employment figures in the US have dampened near-term prospects for a rate cut, driving up bond yields and reinforcing the US dollar.
Cleveland Fed President Beth Hammack noted that current conditions are close to full employment. She cautioned, however, that persistent inflation pressures could lead to further monetary tightening. CME FedWatch Tool data also indicated that markets have dialed back expectations for rate cuts in the coming months.
Mini dictionary: The CME FedWatch Tool is an indicator used to track market expectations for US Federal Reserve interest rate decisions based on futures market pricing. The Fed, as the US central bank, is considered a global benchmark for monetary policy direction.
Big banks hold firm on gold forecasts
Despite steep selloffs in the market, Wall Street’s outlook for gold remains resilient. Large banks have accepted that rate cuts may be postponed, but they have not downgraded their bullish projections for gold. Analysts emphasize a structural demand base that could offset the pressures from high interest rates.
Goldman Sachs has pushed its expectation for the first Fed rate cut to June 2027, with a second cut anticipated as late as December 2027. Nomura forecasts the Fed will hold rates steady until the end of 2026. Still, Goldman Sachs maintains a gold price target of $5,400 per ounce. UBS expects $5,900, while Deutsche Bank points to $6,000. JPMorgan projects a range from $6,000 to $6,300 per ounce.
Central bank buying acts as key support
According to World Gold Council data, central banks have purchased more than 1,000 metric tons of gold annually over the past three years, marking one of the longest buying streaks on record. IMF COFER statistics also show that the global share of reserves held in US dollars continues to decline steadily.
Analysts argue that this trend has created a demand base for gold that operates independently of monetary policy. As a result, several institutions maintain that the long-term outlook for gold remains intact despite short-term selling pressure.
Sell-off spreads to other metals
The price correction was not limited to gold. Spot silver fell 6.8 percent, declining to $68.86 per ounce. Both platinum and palladium slid 5.9 percent. OANDA Senior Market Analyst Kelvin Wong attributed this move to renewed pricing of Fed policy expectations, noting that higher rates put additional pressure on non-yielding assets.
At the start of the year, gold had reached an all-time high of $5,100 in January. Data from Reuters shows that prices have since retreated more than 17 percent. The report also noted that geopolitical tensions after February and rising energy prices have complicated the inflation outlook, with Brent crude climbing to $97 per barrel.
Markets are now focused on upcoming US inflation data. These figures will be closely watched to gauge how long the Fed will maintain its tight policy stance, as well as to determine whether the latest gold sell-off is a temporary correction or part of a more lasting repricing.
