Gold prices remained under pressure at the start of the week as investors grew more concerned that the Federal Reserve may raise interest rates. At the same time, renewed tensions in the Gulf pushed oil prices higher, fueling inflation concerns and adding further pressure on the precious metal.

Gold Extends Decline After Strong U.S. Jobs Report

On Monday, spot gold fell 0.2% to USD 4,321.49 per ounce by 01:24 GMT. The metal had already dropped about 3% on Friday, hitting its lowest level since March 24, after a stronger-than-expected U.S. jobs report increased expectations that the Fed could keep rates elevated or even raise them further.

U.S. gold futures for August delivery also declined 0.5% to USD 4,345.60 per ounce.

The main pressure on gold came from expectations of higher interest rates. When rates rise, gold usually becomes less attractive because it does not generate yield. Meanwhile, Treasury yields and the U.S. dollar tend to gain support, which can reduce demand for gold as a safe-haven asset.

Gulf Tensions Push Oil Prices Higher

In addition to interest-rate concerns, markets are closely watching developments in the Middle East. According to Axios, U.S. President Donald Trump was expected to tell Israeli Prime Minister Benjamin Netanyahu not to retaliate after Iran fired missiles at Israeli targets in response to an attack near Beirut.

Even so, the risk of further escalation pushed oil prices up by more than USD 2 per barrel on Monday. Higher oil prices could add to inflationary pressure, strengthening the case for the Fed to maintain a tighter monetary policy stance for longer. This remains a negative factor for gold.

Fed Has More Reasons to Stay Hawkish

Cleveland Federal Reserve President Beth Hammack said the latest jobs data showed that the U.S. labor market was roughly in balance and close to full employment. However, she also noted that persistently high inflation may require the Fed to raise interest rates soon in order to contain price pressures.

The U.S. economy also posted a third consecutive month of strong job gains in May. This confirmed that the labor market was gaining momentum after weakening last year and gave the Fed more room to keep rates steady or tighter as inflation risks rise amid the Iran-related conflict.

China Continues to Increase Gold Reserves

One notable development is that China’s central bank continued to increase its gold reserves in May, marking the 19th consecutive month of purchases. Data from the People’s Bank of China showed that the country’s gold reserves rose to 74.96 million fine troy ounces.

However, physical gold demand in Asia remained relatively subdued. In India, gold demand was weak last week as buyers stayed on the sidelines due to volatile overseas prices. In China, gold premiums also eased slightly.

Other Precious Metals Trade Mixed

Across the precious metals market, spot silver fell 0.4% to USD 67.52 per ounce, platinum lost 0.2% to USD 1,773.69 per ounce, while palladium rose 0.5% to USD 1,231.51 per ounce.

Gold speculators also increased their net long positions by 14,409 contracts to 111,341 contracts in the week ending June 2. This suggests that despite short-term pressure on gold prices, some investors are still maintaining expectations for the metal’s longer-term outlook.

Conclusion

Gold is currently under pressure from three main factors: strong U.S. labor data, renewed concerns about Fed rate hikes, and rising oil prices driven by Middle East tensions. Although gold remains a traditional safe-haven asset during periods of uncertainty, a high-interest-rate environment and inflation concerns are making any recovery more difficult.

In the short term, investors should continue to monitor signals from the Fed, oil price movements, the U.S. dollar, and geopolitical developments in the Middle East. These factors will likely determine whether gold can stabilize or continue to face downside pressure.

Source: Reuters