The US labor market delivered another blowout performance in May, with nonfarm payrolls handily beating expectations and underscoring the economy's resilience. However, the strong jobs report fueled worries that the Federal Reserve may need to resume raising interest rates later this year to cool an overheating economy. According to Gate market data, spot gold plunged more than 3% on the day, as investors priced in a higher-for-longer rate environment. Capital Economics economist Stephen Brown commented that as long as there is no mass unemployment scare this summer, the likelihood of several Fed rate hikes by year-end is growing increasingly likely. Gold, a non-yielding asset, tends to lose its luster when rate expectations rise, as the opportunity cost of holding bullion increases.
Adding to the macroeconomic anxiety, geopolitical risks remained elevated. US-Iran nuclear negotiations stumbled into a deadlock while renewed conflicts in the Middle East propelled crude oil prices higher. Soaring energy costs compounded already stubborn inflation pressures, further cementing market bets that the Fed will keep interest rates elevated for an extended period. The stalled nuclear talks and supply-side concerns in the energy market are creating a dual tailwind for inflation. In such an environment, the prospect of imminent rate cuts has dimmed, and gold's safe-haven appeal has been overshadowed by a stronger dollar and rising bond yields relative to the zero-yield metal.