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Gold ticks down, as strong U.S. jobs data increases rate hike chances

CommoditiesJun 05, 2015 01:19PM ET
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Gold fell more than 0.5% on Friday to drop under $1,170 an ounce -- Gold futures ticked down on Friday extending losses from earlier this week, as optimistic U.S. jobs data increased the possibility that the Federal Reserve could raise interest rates sooner than previously expected.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery fell 7.00 or 0.60% to 1,168.20 a troy ounce. Gold futures plummeted to a monthly-low of 1,162.20 before rising slightly on a choppy day of trading. At one point, gold hit a session-high of 1,178.00.

Gold prices plunged early on Friday morning after the U.S. Bureau of Labor Statistics released better than expected job figures for the month of May. Last month, U.S. non-farm payrolls soared by 280,000, far exceeding analysts' low end of forecasts for a 220,000 gain. Private payrolls increased by 262,000 in May, as professional business services added 63,000 positions on the month. The labor market also added 17,000 construction position, following a significant gain of 35,000 a month earlier.

More importantly, average hourly wages surged by 0.3% on a month-to-month basis up from a 0.1% increase in April. The Fed would like to see robust wage growth and inflation move toward its targeted goal of 2% before it institutes its first interest rate hike in nearly a decade. While the economy grew at a tepid pace over the last several months, Hawkish members of the Fed argued that temporary drags such as severe winter weather and a West Coast port labor dispute disproportionately restrained growth. The Labor Department also upwardly revised jobs figures for the previous two months further underscoring the Hawkish viewpoints.

While the unemployment rate inched up to 5.5% in May, the Labor Force Participation rate also moved higher last month, increasing 0.1% to 62.9%.

The Fed's decision to tighten monetary policy is viewed as bearish for gold. The precious metal is not attached to dividends or interest rates and struggles to compete with high-yield bearing assets in periods of rising rates.

Separately, Federal Reserve of New York president William Dudley reiterated on Friday that the Fed will likely raise rates at some point this year. It is widely expected that the Fed could wait until September before raising its benchmark Fed Funds Rate, though it has not ruled out lift-off in June. On Thursday, the International Monetary Fund suggested that the Fed should wait until the first half of 2016 for lift-off unless the U.S. economy improves dramatically over the next several months.

As expected, the two sides in the Greek Debt negotiations failed to reached an agreement on Friday. Earlier this week, France president Francois Hollande said Greece and its international creditors appeared to be hours from reaching a deal on agreement that could unlock critical aid to the beleaguered nation. Greece prime minister Alexis Tsipras, though, may have rankled creditors on Thursday by bundling four separate obligations to the IMF into one repayment at the end of this month. In doing so, Greece delayed repayment of a EUR 300 million payment due on Friday.

In a defiant speech to Parliament, Tsipras urged European leaders to withdraw a proposal Greece viewed as unrealistic.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose 0.86% to 96.32.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for July delivery fell 0.0106 or 0.66% to 15.995 an ounce.

Copper for July delivery gained 0.02 or 0.06% to 2.689 a pound.

Gold ticks down, as strong U.S. jobs data increases rate hike chances

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